UNIVERSITY OF VAASA

FACULTY OF BUSINESS STUDIES

DEPARTMENT OF MARKETING

Ville Virtanen

IMPACT OF RECESSION TO COMPANIES

MARKETING ACTIVITIES

Master’s Thesis in

International Marketing

VAASA 2011

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TABLE OF CONTENTS page LIST OF FIGURES 5 LIST OF TABLES 5 ABSTRACT 7 1. INTRODUCTION 9

1.1. Background of the study 9 1.2. Objectives and the research problem 11 1.3. Limitations of the study 13 1.4. Literature review 14 1.5. Structure of the study 17

2. MARKETING MIX ELEMENTS 19

2.1. Product 19 2.1.1. Product strategy 20 2.1.2. Product mix decisions 21 2.1.3. Product adaptation 22 2.1.4. New product development 24

2.2. Price 27 2.2.1. Pricing decisions 28 2.2.2. Pricing approaches 30 2.2.3. Pricing strategies 32

2.3. Distribution 37 2.3.1. Distribution strategy 40 2.3.2. Channel decisions 44

2.4. Promotion 46 2.4.1. Promotion strategy 48 2.4.2. Advertising 49 2.4.3. Sales promotion 51 2.4.4. Public relations 53 2.4.5. Personal selling and direct marketing 54

3. MARKETING ACTIVITIES DURING RECESSION 60

3.1. Introduction to marketing in recession 60 3.2. Marketing activities which emphasises during recession 63 3.3. Theoretical model 69

4. RESEARCH METHODOLOGY 71

4.1. The chosen method 71 4.2. Data collection 73 4.3. Data analysis 75

5. RESULTS OF THE EMPIRICAL STUDY 78

5.1. Introduction of the case companies 78 5.2. Development in case companies during 2007-2010 80

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5.3. Results of the interviews 82

5.3.1. General view from the effects of recession 82 5.3.2. Effects of recession on product 84 5.3.3. Effects of recession on price 84 5.3.4. Effects of recession on distribution 85 5.3.5. Effects of recession on promotion 86 5.3.6. Effects of recession on marketing budget and future views 89

6. SUMMARY AND CONCLUSION 94

6.1. Summary of study 94 6.1.1. Summary of results 97

6.2. Conclusion 102 6.3. Practical implications 104 6.4. Future research possibilities 105

REFERENCES 107 APPENDIXES 112

Appendix 1. Subject areas for personal interview of case company 112 Appendix 2. Subject areas for interview of marketing expert. 114

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LIST OF FIGURES

Figure 1: Structure of the study

Figure 2: Five Product Levels (modified from Kotler 2003)

Figure 3: New product development (modified from Kotler & Armstrong 2006; Albaum

& Duerr 2008)

Figure 4: Pricing decisions (Kotler & Armstrong 2006: 309)

Figure 5: Assessing and responding to competitor’s price changes (Kotler & Armstrong

2006: 347) Figure 6: Distribution variable divided into channel and logistics components (Adopted from Rosenbloom 2004)

Figure 7: Design of channel strategy (Adopted from Rosenbloom 2004)

Figure 8: Integrated marketing communications. (Adopted from Kotler & Armstrong

2006)

Figure 9: Push versus pull promotion strategy (Adopted from Kotler & Armstrong

2006)

Figure 10: Different phases in sales force management (Adopted from Kotler &

Armstrong 2006)

Figure 11: Main forms of direct marketing (Adopted from Kotler & Armstrong 2006)

Figure 12: Development of marketing communication investments in 2009 compared to

2008 (adopted from Mainosbarometri)

Figure 13: Theoretical model

Figure 14: Suggested changes in marketing mix elements

LIST OF TABLES

Table 1: Pricing strategies (Adopted from Kotler & Armstrong 2006)

Table 2: Empirical studies about marketing during recession

Table 3: Development of company A

Table 4: Development of company B

Table 5: Development of company C

Table 6: Development of company E

Table 7: Summary of changes in marketing activities

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UNIVERSITY OF VAASA

Faculty of Business Studies

Author: Ville Virtanen

Topic of the Thesis: Impact of recession to companies

marketing activities

Name of the Supervisor: Professor Jorma Larimo

Degree: Master of Science in Economics

Department: Marketing

Major Subject: International Marketing

Year of Entering University: 2005

Year of Completing the Thesis: 2011 Pages: 114

ABSTRACT

Recession is interesting and multidimensional phenomenon, which has been on the headlines lately. Phenomenon has been studied earlier and the consequences of it have been target of interest for business and academic. Purpose of this study is to explore that Will companies change or adjust their marketing activities due to recession to survive better from it? Marketing literature about marketing mix and the use of different marketing activities construct the base for this study. Recession has been studied widely in academic field, but only few studies have focused only on marketing mix elements and marketing activities during recession. Still, some earlier studies have clear evidence that companies which increase marketing activities during recession will face the increase of market share and sales. In this study there was constructed theoretical model, which is based on marketing mix elements and previous studies. This theoretical model suggested specific marketing activities, which could improve the performance of companies during recession. According to findings of empirical study, recession was not considered as major threat in the case companies of this study. All the case companies announced that they do not change their marketing strategy due to recession. Other major influencing factors for these companies were general strategy, marketing strategy, industry, nature of products and customers. Companies in this study did not consider recession as opportunity to increase marketing activities in this study despite the results of previous studies. Empirical study proved that recession had only minor influence of case companies. Still, there was some evidence in this study that increased marketing activities can have positive influence on companies’ performance during recession. One of the case companies faced increased turnover and sales during years 2007-2010, when they increased marketing activities. ______________________________________________________________________ KEY WORDS: recession, downturn, marketing mix, marketing activities

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1. INTRODUCTION

Introduction chapter explains the structure of whole thesis and it begins with

explanation for the background of the study. Objectives and research problem are

introduced and also limitations of the study are described. There is brief introduction

about the literature which this thesis contains and finally the structure of the study gives

the general view about whole thesis.

1.1. Background of the study

These days there are several phenomena which are connected to worldwide economy.

Some of these phenomena can be explained with some theory or those can be tested

with some theoretical model. However, connecting factor for most of the phenomena is

that those are under of research and people want to know the reason behind of it. People

in academic and business world are similar in a sense that they want to be familiar with

the phenomenon. Even more if there is a chance that phenomenon can be profitable or

unfavourable for their business. Recession is one of these phenomena. Recession occurs

with different amplitude and frequency in a worldwide economy. Sometimes it can be

strong and worldwide and on the other hand it can be local and its effects can be

insignificant. Recession is definitely a phenomenon which raises questions and interest.

According to Ryan (1991) the idea of conducting a study which is combines recession

and marketing, goes back to 1920’s. Once again this phenomenon has been topical

when worldwide economy turned in to downturn in the end of the year 2008. (Geroski

& Gregg 1997; Parkin, Powell & Matthews 2003; Shama 1993, Ryan 1991).

Whenever or wherever the recession occurs, it will raise questions. Researchers in

academic field are mostly interested about the reasons and consequences behind the

phenomena in general level. In business world recession tends to draw attention when it

comes to company’s possibilities and threats. There are several points in this

phenomenon which could be studied, but in general the predictability of recession is one

interesting issue which many of researchers would like to know. There are numeric facts

about the recession, which have pulled from the earlier recessions. These numbers are

still the average numbers of previous recessions so these cannot be easily generalized to

every following recession. For example Parkin, Powell and Matthews (2003:705) have

described recession in their academic book Economics. According to Parkin et al.

(2003:705) during the last century there were nine business cycle turning points and the

average numbers of those indicates that, recessions lasted about two years, and during

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the recessions real GDP fell almost 10 per cent from the top to bottom. These numbers

prove that the facts about recession are highly on general level and these cannot help too

much on predicting the following recession. (Parkin et al. 2003).

Recession is such a multidimensional phenomenon that researchers have not found clear

explanation for that, but that fact just increases the interest towards the phenomenon

from the academic researchers and business life’s behalf. It is clear that many

companies would be interested about the fact whether there exists a way how they could

benefit from recession, so there is no need to argue the reason for this study. (Parkin et

al. 2003; Shama 1993 & Ryan 1991).

In this thesis the interest is in the relationship between marketing activities and

recession. Emphasis is on the effects of marketing activities for companies’

performance during recession. Marketing itself is such a big part of entire company so it

cannot be included entirely for this study. This study focuses on marketing mix

elements and for the changes made in marketing mix elements during recession. In other

words, does it pay off to invest more on marketing activities during the recession. Ryan

(1991) state that American Business Press studies found already in the 1970’s

formidable evidence that cutting advertising costs during economic downturns can

result in both immediate and long-term negative effects on sales and profits. These

findings prove that same topic is worth of researching these days also. John Quelch

(2008) and Pankaj Ghemawat (1993) argued also that marketing should be emphasised

during recession and cutting costs from marketing might have long-term negative

impact. Under of investigation are companies which have international business to fulfil

the international aspect of this study. In this research target group includes companies

with varying size from small to large, but the main attention is in marketing activities of

the case companies. (Shama 1993; Bhose 2009 Ryan 1991, Quelch 2008 & Ghemawat

1993).

Recession as phenomena is quite lot studied around the world in different universities,

but there are not so many studies conducted in Finland which would focus only on

marketing mix elements during recession. There are studies made which concerns

recession in the University of Vaasa and one of those is concerning similar topic which

includes the international point of view and it is made in the department of marketing.

This thesis was conducted in year 1997 and author the author is Jyrki Holappa. Another

research which is also concerning similar topic is the research of Karin Holstius which

was conducted in 1984. These two mentioned studies concerns the similar topic in a

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broad sense, but those also creates the research gap. Research gap is in the action of the

companies, because these previous studies have focused on the environment and how

that has affected to companies. In this thesis the focus is more on the company’s actions

and how those are trying to cope with the recession. (Holstius 1984, Holappa 1997).

There is also clear novelty value in this thesis since the lack of studies in Finland which

are conducted with same topic.

Already the introduction of the topic proves the challenges of this thesis. It has to be

mentioned, that this study is not trying to achieve specific and detailed results which

could be generalized to broad amount of companies or cases. The aim of this thesis is

rather to give some evidence that marketing actions can help companies and improve

their performance during recession.

1.2. Objectives and the research problem

Main purpose of this thesis is to study if recession affects on companies and especially

on their marketing activities. Aim is to study through case companies if companies

change their marketing activities in a particular way to achieve some specific effect. In

other words the research problem is that:

Will companies change or adjust their marketing activities due to recession to survive

better from it?

Surviving better from recession in this case means that companies do not suffer

significantly from decreased sales or decreased market share. Surviving better from

recession means naturally also that companies have increased their sales or market share

during recession.

If there can be found answer for this research problem that companies adjust or change

their marketing activities due to recession it can partly confirm the earlier studies

results. Results of some earlier studies argue that increased marketing activities can

improve companies’ performance during and after recession.

Objectives will most likely to steer the direction of the thesis, because thesis have to be

formed in order to reach the objectives. To be able to fulfil the main purpose of the

study, there have to be objectives. Objectives of this study have been divided in to

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theoretical and empirical objectives. First objectives are theoretical and the latter ones

are empirical. Theoretical objectives are:

• To analyse and compare relevant and similar studies concerning marketing

activities during recession

• To construct from previous studies and from marketing literature theoretical

model of possible adjustments in marketing activities during recession

Empirical objectives are:

• To interview decision makers of case companies about the effects of recession

on companies marketing activities during 2008-2010

• To analyse the results of the empirical study and compare them to theoretical

model

The second theoretical objective to construct theoretical model will mostly be based on

marketing mix from the literatures behalf. The marketing mix was chosen, because it

presents all the basics of marketing which emphasises during the recession. It is also

one of the most notorious theories of marketing so that is speaking in favour of

choosing that. Recent and previous studies about recession and its effects will be also in

significant role when constructing theoretical model. Previous studies which have been

chosen for theoretical part of the study are from different areas of the world. Reason for

this is to have variation for analysing the effects of recession.

In empirical part of the study there will be companies which are operating in

international scale and particularly interviews of the CEO’s and other decision makers

of marketing. There is no specific industry chosen, but all the case companies have

international activities or they at least those are part of international company to fulfil

the international aspect of the research. Connective factor for all the case companies is

that those are manufacturing and marketing consumer products or the end-users are

consumers. The number of interviews of case companies is limited to 5. The region or

origin of the case companies is not limited. Interviews should reveal the actions which

are made inside the company. By keeping the participant companies and interviewed

persons anonymous there is better chance to get the answers. After comparing the

results there will be final analyse that if companies are affected by recession in a sense

that they adjust or change their marketing activities. The examination period covers four

years from 2007 to 2010 and the reason for that is that there can be found the time

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before recession, decline and the recession. Also year 2011 is included to analysis,

because some companies might have already changed their way of marketing or they

are planning to change it.

In empirical part of the study there will be also interview of professional of marketing

which represents neutral party. This professional interview will give more scale and

perspective for this topic. Professional of marketing can also give their own thoughts

and opinions how recession has affected to companies. Answers can also include tips

and opinions that how companies should change their marketing activities and how to

use the scarce marketing assets in effective way. The size of case companies varies to

have different point of views in empirical part of the study and this also increases the

credibility of the study. View point in this study is from the company’s point of view.

1.3. Limitations of the study

Every research has own limitations concerning the topic and so do this thesis also. In

the first place it could be said that the topic of this thesis is challenging. Usually

phenomenon is studied afterwards when the results or impacts are easy to recognize.

During the writing process of this thesis the recession is still partly going on in several

areas around the world. This means that all the impacts are not yet recognizable and

neither are the results of the actions made during the recession. That is one and maybe

the biggest limitation of this study that this moment is not the most favourable to do this

study. In opposite, it could be also said that even though time period is challenging, it is

also the time period when companies and persons posses the valuable information.

Other limitation of this study connects to the first one and it concerns the empirical part

of the study. It might be challenging to collect the empirical data from the chosen case

companies when the times are difficult already. That is one major limitation and

challenge for this thesis that enough of interviews can be made. Other limitations

concern the general issues of the study. Since the field of marketing is such a huge and

wide, there have to be made some limitations which areas of marketing are involved to

this thesis. Marketing mix is the base for this study’s theoretical part and the research is

made in order to study the possible changes in marketing mix. Marketing mix itself is

also wide topic and the marketing literature is limited for marketing mix.

Limitation is also that this thesis is concentrating only to marketing. Impacts of

recession can vary tremendously and other areas like finance, human resource and

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production related decisions are also affected by recession, but these areas are not

included for this thesis. Recession as phenomena itself sets some limitations for this

study. Recessions always vary from each other recession (Parkin et al. 2003) and that is

the reason why it is difficult or even impossible to create knowledge which could be

used equally during some later recessions. This is creating challenges also for reliability

and validity of this thesis. As a one limitation can be mentioned that there is clear lack

of theories which are straight connected to this topic. It will set some difficulties for

collecting and analysing relevant theory which will be the base for theoretical model.

1.4. Literature review

Recession as phenomenon is too broad to study and to limit the results of finding

information; the key words used with recession were marketing mix, marketing

strategy, promotion, survival, opportunity and longitudinal. Literature for this thesis is

mainly collected from the library of the University of Vaasa and also from the library of

Helsinki School of Economics. Literature is also collected from electronic databases

like EBSCO, Emerald and ABI Inform Global.

In this thesis there will be less concentration on the reasons for recession, because those

are concentrating more on economics than marketing. Still, the short explanation about

business cycles is given and that comes from the academic book Economics which is

written by Parkin, Powell & Matthews (2003). The business cycle can be described as

irregular and non-repeating up-and-down movement of business activity that takes place

around usually rising trend and that shows great diversity. According to Bernard Ryan

(1991: 7-8) National Bureau of Economic Research defines recession as period of at

least 6 consecutive months when Gross National Product (GNP) goes down. Ryan

(1991) adds that other definition for recession is that three following months when there

is decline in composite index. During such a period unemployment goes up and

consumer confidence goes down.

Some generalizations can be made from the last century. The average numbers are from

recessions and expansions of last century. Last century there were 9 business cycle

turning points and if we take the average number of those we can say that, recessions

lasted about two years, and during the recessions real GDP has fallen almost 10 per cent

from the top to bottom. Expansions have lasted about six years and the real GDP has

also risen about 10 per cent, on average (Parkin et al. 2003: 705). It is still good to

remember that these average numbers masks huge variations between the different

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cycles. After examining the business cycles on last century Parkin et al. (2003: 705)

says that there is no one model or simple explanation for the business cycle. In addition

they mention that at this moment there is no available way how the next turning point

could be forecasted. These facts prove that recession is difficult and multidimensional

phenomenon to analyze and define.

Main literature about marketing comes from the notorious Phillip Kotler. Kotler has

written many academic books about marketing management and in this study Principles

of Marketing is used as basic theory. Principles of Marketing were chosen for this study

since it covers all the fundamental aspects of marketing. All parts of Marketing Mix

product, price, distribution and promotion will offer the base for theoretical part of the

study. These elements are also the base of the theoretical model which is the outcome of

theoretical part of this study. Each of these parts includes lots of features and according

to Kotler marketers’ task is to devise marketing activities to integrate these parts in a

way that it will increase the value for customer (Kotler & Keller 2009: 62, Kotler &

Armstrong 2006).

This core idea in marketing should not be abandoned in recession or in downturn when

companies tend to have less extra earnings. There are some examples from successful

marketers which are global companies like Procter & Gamble, Nike, Sony, Toyota,

Disney and Nokia. Kotler and Armstrong (2006) point out that these companies have

been successful in their marketing, because they have focused on customers and they

are organized to respond effectively to changing needs of their customers. Times like

recession companies should also be aware about their customers and be able to respond

their changing needs by adapting the strategy. In this thesis there will be empirical part

where companies with different size are under of investigation during recession. Under

of closer scrutiny is the issue that are these companies able or willing to develop their

marketing in a way that they can survive better from recession

Other supporting literature for marketing mix elements and international marketing

comes from Albaum & Duerr (2008), Czinkota & Ronkainen (2004) Rosenbloom

(2004) and Jobber (2004). These books were chosen for this thesis because those can

provide knowledge and theory which connects the marketing and recession.

For the methodology part of this thesis there is specific literature chosen to support

whole thesis. Since the nature of this thesis is qualitative, Laadulliset menetelmät

kauppatieteissä by Koskinen, Alasuutari & Peltonen (2005) was chosen to provide

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knowledge in research methodologies. Other supporting knowledge from methods of

data collection and data analysis is collected from Maylor & Blackmon (2005),

Metsämuuronen (2005), Syrjälä, Ahonen, Syrjäläinen & Saari (1994), Marschan-

Piekkari and Welch (2004), Grönfors (1985), Silverman (2006), Hirsjärvi, Remes,

Liikanen & Sajavaara (1986) and Yin (2003). These authors were chosen because all of

them are well known in the field of research methodologies.

Previous studies are also the base of this study. From the previous studies it can be

concluded some actions which companies have done in earlier recessions. These actions

might have been wrong or right what comes to success of the company during the

recession and after it. It was already mentioned in the limitations that this time is not the

most suitable to study the effects of marketing, because all the effects are not yet

recognizable. If companies are making some changes in their strategy or increase the

marketing investments, the results of that action might be seen after few years. Previous

studies concerning the recession and marketing provides for example Shama (1993),

Laitinen (1994), Dugal & Morbey (1995), Holappa (1997), Pearce & Michael (1997),

DeDee & Vorhies (1998), Roberts (2003), Köksal & Özgül (2007) and Urbonavicius &

Dikcius (2009). Some of these studies are from the early days, but these were chosen

because these are relevant concerning the topic of this thesis. These previous studies are

presented more detailed in chapter 3.

One previous study which was conducted by Goodell and Martin (1992) points out that

marketing during recession is worth of studying. According to Goodell and Martin

(1992: 5) the biggest issue in recession marketing is that how can marketing

professional help the firm despite the ravages of the business cycle and even come out

with an improved position in the end of recession. One example is privately held

window maker, Marvin’s Windows, which treated the recession as opportunity. It

computerized its lead-tracking system and substantially raised its advertising budget

during the 1981-1982 recession. As a result sales increased from $37 million in 1981 to

almost $45 million in 1982 and over $68 million in 1983. According to this company’s

Vice-President of Sales and Marketing, recession is the right time to make investments

in sales and marketing. This example proves that clear planning is critical for companies

which are dealing with effects of a recession. (Goodell & Martin 1992: 10, Kim 1992).

This study by Goodell and Martin (1992) and above mentioned carefully chosen studies

connects marketing and the recession. Study from Rao, Erramilli & Ganesh (1998) were

left out since it was focusing on domestic recession. That is the reason why these have

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been chosen as basic knowledge about recession when constructing the theoretical

model of this study. In the theoretical model there will be suggestions that which

marketing activities have been proved to have positive effects on companies.

1.5. Structure of the study

In the first chapter the whole thesis is introduced. First chapter includes the introduction

and it explains the background of the study. When the background of the study has been

explained, then the research gap and the reason for this topic is introduced. Research

problem is explained next and in the same sub-chapter the objectives of the study are

introduced. Most important definitions for this study are also introduced in the

introduction chapter. Limitations of this thesis and the literature review are covered in

the end of the introduction chapter.

Second chapter is totally theoretical and it pulls together most relevant parts of

Marketing Mix elements product, price, distribution and promotion. Each Marketing

Mix element is not introduced completely, but especially those elements are scrutinized

which might highlight during the recession. This chapter support in understanding of

basic elements of marketing and it also creates the base for theoretical model in chapter

three.

In third chapter there is short introduction to marketing in recession. After introduction

there are previous studies analysed which concerns similar topic. These studies

construct the theoretical model together with basics of marketing mix elements. In this

model the most important elements of marketing is pulled together which emphasises in

recession. In the end, there is conclusion of the actions which companies might execute

during the recession. These actions are described also in figure of Theoretical Model

which can give overall impression about the recession and marketing activities.

Fourth chapter explains the methodology of this thesis. Most suitable methods for

unravelling the research problem are introduced in this chapter. The chosen method is

explained and the data collection and analysis of the data. In the end of the chapter there

is brief description about the validity and reliability. Fourth chapter also describes that

how reliability and validity are increased in this study.

Fifth chapter reveals the results of empirical study and in the beginning of the chapter

there is short introduction about the case companies and the industry where those

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companies are operating. Results are introduced in different themes which are based on

themes of interviews. Finally the sixth chapter summarises the whole study. Objectives

and research problem are analysed again in the last chapter. In the last chapter the

analysis of the entire empirical study is explained and after that there is final conclusion

given about the empirical part. Finally, sixth chapter ends to practical implications and

future research possibilities. Whole structure of the study is described in the figure 1 to

give clear impression about entire study.

Figure 1. Structure of the study.

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2. MARKETING MIX ELEMENTS

In this chapter the main parts of marketing mix are explained and especially those which

could be changed in recession. The aim is not to explain every mix element thoroughly,

rather giving short and compact definition about them.

2.1. Product

Kotler (2009:407) defines product as anything which can be offered to customers that

satisfies customers need or want. Usually product is thought as physical product, but

actually product which is marketed can include physical goods, services, experiences,

events, persons, places, information etc. Product can be divided to five different levels.

These levels can be seen from the figure below.

Figure 2. Five Product Levels.( modified from Kotler 2003)

According to Kotler (2009) all these levels of product adds value for customer but the

most important level is the core benefit. The core benefit can be thought as service or

product which customer really wants to buy. The car buyer is buying a car and the

purchaser of massage is buying massage. Marketer has to remember what core benefit

customer is really buying. In the second level the core benefit has to be turned a

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physical service or product. When buying a massage from spa customer can get

additional odours, restful music etc. but the core product is the massage. At the third

level expected product and the image about that is created to customer. For example in

the spa customer can expect clean towels, clean rooms and calming atmosphere. When

spas usually can fulfil these expectations, customer can choose the spa which is not the

most expensive one.

Kotler (2009:408) continues that next level is augmented product and this is the level

where the expectations of customer can be exceeded. These days in industrialized

countries most of the products can easily fulfil the expected level. When the basic

expectations are fulfilled then it means that companies can differ and compete on

augmented level. In other words the competition is not between products, but between

additional things like services, advertising etc. Fifth level is potential product which

means all the possible forms of product which can be added to basic product. In the

future when technology goes on companies can add services or change their product in a

way that customers can’t even imagine.

2.1.1. Product strategy

Due to Kotler and Armstrong (2006: 46) companies are creating strategic plans to reach

different goals. Strategic plan also defines company’s missions and objectives.

Companies have to include many factors in strategic plans and one factor is product

strategy. Marketing strategy will guide the company how to design marketing mix

strategy and along that comes product strategy. Companies try to find the best

marketing strategy and usually it involves marketing analysis, planning, implementation

and control. Executing these actions will make it easier to find every actor and force

which has influence to company’s marketing strategy. Once the marketing strategy has

been created, then begins the defining of more detailed strategies like product strategy.

Kotler (2005: 173) says that most of the companies define themselves through the

products which they are selling. Companies which are building automobiles say that

they are car manufacturers etc. Product centrality and concentration only to own

products involve some threats. Product centrality can lead to forgetting the real need of

customers. Some companies have lost many opportunities when they have focused only

to own core product. According to Kotler (2005) there are four different ways how

companies decide what to sell; sell already existing product, produce something that

somebody wants, predict the product that somebody wants in the future and produce

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something that nobody is asking for, but it creates lots of pleasure for purchaser. The

last option includes the highest risk, but also the possibility for big profits.

Kotler (2005) continues that it is important to sell more than just a product. Harley

Davidson is selling something which is much more than a product. They are selling

experiences, which can give the feeling of communality, and that is much more than a

motorcycle. Too many companies have poorly constructed their product portfolio which

is one part of product strategy. Some companies have achieved their position with wide

selection of different priced products like Marriot in hotel business. Kotler (2005)

advises that companies should involve themselves so many markets as possible which

they desire to control. Marriot have earned its position with good product portfolio

which includes different priced hotels. Kotler (2005: 175) still reminds that even though

company would have better product than its competitor, it does not mean the leading of

markets. Apple’s computer software is generally considered better than Microsoft’s

similar product, but Microsoft is the market leader. Sometimes the product with better

marketing strategy beats the better quality product. This example proves the meaning of

marketing strategy and product strategy.

Creating profitable product strategy (Kotler & Armstrong 2006; Albaum & Duerr 2008;

Jobber 2004) involves many factors like individual product decisions, product line

decisions and product mix decisions. All these factors have to be planned thoroughly to

achieve the most suitable product strategy. When creating product strategy, there are

several issues which companies have to consider like product standardization vs.

product adaptation, exporting of products and social responsibility of products. These

days global business environment creates lots of challenges for companies to create

profitable and sustainable product strategy. Companies have to be ready to adapt their

product strategy in fast changing business environment.

2.1.2. Product mix decisions

Kotler and Armstrong (2006: 248) defines that organization which has several different

products in different product categories hold also a product mix. Product mix consists

from all the possible product lines and individual products which company is selling.

Product mix can be divided to four different dimensions; width, length, depth and

consistency. Width of product mix means that how many different product lines

company has. Length refers to length of every different product lines, that is, how many

different items company has in product line. Depth means that how many different

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versions of single product offers. Finally, consistency of product mix is defined that

how close different product lines are from end users point of view. Consistency can be

also measured that how close are product lines from production requirements,

distribution or advertising. Company has to consider these dimensions thoroughly and

then make the decisions that which would be the optimal product mix for them.

According to Kotler (2009:418) in product mix decision is also vital to consider product

line modernization, featuring and pruning. Modernization is current issue when

competitors are modernizing their product lines or when the production line is cost-

efficient anymore, that is, new technology enables more effective way to produce

products. Featuring of products is effective way to boost selling in time of slow

demand. Product line managers can sometimes feature low-priced products to attract

customers or feature high quality item to add the valuation of product line. Pruning of

products and product lines should be considered when sales and cost analysis shows that

some of the products do not fulfil all the requirements of company. Pruning can be also

used when company is suffering from the short of production capacity. These above

mentioned solutions can help companies to achieve better competitiveness and cost-

efficiency.

Albaum & Duerr (2008: 428-434) states that for the final product mix decisions usually

affect two different determinants; internal and external. In short, internal determinants

are factors which emerge from the company. Usually these are related to company’s

objectives, resources and potential profitability. Company’s objectives steer the decision

of product mix, whether it is growth, gaining market share, avoiding risks or increasing

the production capacity. Resources usually only enables or restrict the possible product

mix decisions. The decisions are also affected by potential profits of certain products.

The product mix decisions have to be made together with other marketing mix decisions

to ensure the competitiveness of these products. External determinants are factors such

as customer influences, country of origin and competition. All of these factors company

has to also include when making the final product mix decision.

2.1.3. Product adaptation

In the recession companies have to consider product adaptation thoroughly in many

forms, because customers and consumers are more price and quality oriented. The

competition might also be fiercer and that increases the pressure towards companies to

23

adapt for the situation. Adaptation concerns entire company but one target for

adaptation in recession is product.

According to Czinkota, Ronkainen and Moffet (2005) the goods and services are the

core of the company’s international business. The company’s success in international

operations is much dependent about the goods and services and how well these fulfil the

needs of customers. It is also vital that those are well differentiated from the

competitors. Czinkota et al. (2005: 479) argues that variables for product adaptation can

be divided to three different categories: the markets targeted; the product and its

characteristics; and company characteristics.

Czinkota et al. (2005) says that it is clear that market environment and target country

have dominant role in product adaptation and modifications. Government regulations

usually have the biggest effect for modifications. Some of the regulations are made only

to protect local industry and this might make the product adaptation troublesome.

Foreign individual companies can manage with these regulations by lobbying directly or

lobbying via industry associations to have this issue on table. Another big effect on

product adaptation is local behaviour, attitude and traditions. These issues concern

especially the marketers of consumer products.

However, the knowledge of local culture and manners will help the company in product

adaptation decisions. They (Czinkota et al. 2005) also argue that sometimes only change

in product’s position is enough and there is no need for actual changes. Example from

this is Coca-Cola how they changed their position of Diet-Coke in Japan. By looking

the size of Japanese people by western standards there is no urgent need for diet

products. Coca-Cola changed the promotional theme from weight loss to figure

maintenance. Nontariff barriers like product standards and testing procedures are also

typical issues which companies have to consider in product adaptation. Also monitoring

the competitors’ product features and consideration of the stage of economic

development in target market are critical product adaptation decisions (Czinkota et al.

2005: 479-481).

Product characteristics can make the product itself easy to standardize and some

inherent product characteristics make it easier to adapt. In physical product

characteristics are things as packaging, labelling, brand names, brand aesthetics and

repairing services in technical issues (Czinkota et al. 2005: 481-483).

24

Czinkota et al. (2005: 479-484) says that company considerations like company policy

have big effect on product adaptation. When company is considering product adaptation

the biggest question is that is it worth it. To find out that adaptation is useful or not

company has to consider the controlling of costs and market potential. Market potential

can be discovered through exhaustive market analysis and market research. This

analysis also increases the total costs of product adaptation. Some companies use

financial indicators to measure if product adaptation is possible or not and some

companies want that there is consistency between their products which determines the

possible adaptation. By product adaptation marketer can enhance the company’s

competitiveness and that it is vital in uncertain economic circumstances like recession.

Many companies consider every situation independently, but they should also be ready

to bend from company policies, which mostly determine possible product adaptation.

2.1.4. New product development

There are many different ways how companies can add new products to their product

mix (Kotler & Armstrong 2006, Albaum & Duerr 2008). One way is to export domestic

products and this is easy strategy to implement and it also represents low-cost strategy

in new product developing. Another relatively easy strategy is to acquire another

company and with the company some new products. This strategy is certainly not so

economical than exporting domestic products, but it can offer some huge advantages.

The acquired company might operate in the market area where firm has planned to

entry. By acquiring local company and its products foreign company don’t have to

make product testing which saves time and financial assets. Company can also start to

develop totally new product from scratch with its own research-and-development

department. This option is the most time consuming which also requires lots of financial

investments and it includes the highest risk to fail.

According to Kotler and Armstrong (2006: 275) new product development always

includes risks and there are several examples from big companies which lost huge

amount of money in failure of new product development. Kotler and Armstrong (2006)

continue that according to some estimates 90 percent of new product launches fail

within 2 years after the launch. Authors find several reasons for failure of new product

development. There is always a chance to overestimate the market size, product is

maybe not so well designed, product have been positioned wrong, the price have been

too high or it has been advertised poorly. One crucial part of new product development

is marketing research and if company does not pay attention for that, it might cause the

25

failure of whole project. Sometimes competitors can also answer for the competition

harder than expected and that tend to cause problems in new product developing

process. These reasons for failure prove that new product development can be rough

route to be passed successful. Company has to understand its customers, competitors

and markets to be successful in new product development. These factors highlight in

economic uncertainty like recession where companies have to consider every

investment thoroughly (Kotler&Armstrong 2006: 275-276).

Kotler and Armstrong (2006) and Albaum and Duerr (2008) argue that companies have

to set up proper system for new product planning and development which enables

successful new product development and launch. The different phases of this process

are shown in the figure 3.

Figure 3. New product development.( modified from Kotler & Armstrong 2006; Albaum & Duerr 2008)

26

Whole new product development process (Kotler & Armstrong 2006; Albaum & Duerr

2008) can be roughly divided to three different sections. First three phases concentrate

on idea developing. Second section is purely business point of view for development

process. Final three phases are actual development when the physical development

process begins.

Next, every phase is explained more detailed. First phase (Kotler & Armstrong 2006;

Albaum & Duerr 2008) on product development is idea generation and this means that

company has to systematically generate many as possible new product ideas. It is

expected that only few ideas will be successful so it is important that company can

create lots of potential ideas for new product from internal and external sources. Second

phase is idea screening and the purpose of this phase is to reduce the number of

potential ideas. The whole process is pricey and companies do not want to develop any

additional ideas. It means that companies want to develop only truly potential product

ideas which have the biggest chance to turn profitable (Kotler & Armstrong 2006;

Albaum & Duerr 2008).

Third phase (Kotler & Armstrong 2006; Albaum & Duerr 2008) is concept development

and testing of it. In this stage of product development companies need to make

difference between product idea, product concept and product image. Product idea is the

actual product which company is producing for markets. Product concept and image are

more detailed version of the product and these are vital from the customers’ point of

view. Testing is also in vital position of developing process and it should be done in

final target customers, whether those are consumers or companies (Kotler &Armstrong

2006; Albaum & Duerr 2008).

Next phases (Kotler & Armstrong 2006: 283) in product development are marketing

strategy development and business analysis. Developing marketing strategy includes

acquiring detailed information from target market, product positioning, profit goals,

marketing budget, planned long-run sales and decision of marketing mix strategy.

Business analysis is more of analysing financial numbers like sales, costs and profits.

Company estimates possible sales, costs and profits and then compare those numbers to

company’s objectives, if these figures fulfil objectives, product can move on next phase

which is the actual development stage.

Final stages (Kotler &Armstrong 2006; Albaum & Duerr 2008) in new product

development are product development, test marketing and commercialization. In earlier

27

stages product has been tested from business point of view and actual product

developing starts in this stage in R&D department. Usually in the beginning product or

idea is only a picture, description or mock-up and this requires huge effort from R&D

department to turn it actual product. This stage also requires time and financial

investments. Test marketing is in vital role before final launching. In test marketing

company tests different marketing programs, positioning, advertising, pricing etc. This

stage usually takes time depending about product characteristics and the costs might be

high, but Kotler and Armstrong (2006: 285-286) reminds that usually these costs are

low to compared costs of launching without testing. Still, long lasting and proper market

testing do not guarantee the success of new product. After market testing is the final

commercialization. In commercialization company have to make decisions that where

and when introduce the new product. Competitors might effect on timing and scale of

introduction and company has to consider these matters thoroughly to confirm

smoothest introduction for new product.

Finally authors (Kotler &Armstrong 2006; Albaum & Duerr 2008) state that usually this

sequential product development process is time and resource consuming. These days in

hectic, global and highly competitive markets companies should consider more effective

team based product development. In order to be more effective, different departments

like marketing, finance, R&D and legal departments should work closely in cross

functional teams. With this companies can save time, be more effective and add

competitiveness.

2.2. Price

Kotler and Armstrong (2006: 307) defines price shortly; that is the amount of money

which is charged from the product or service which is sold to end-user. Broader

definition is that price means all the values that end-user exchange for the benefits of

having the product, whether it is a service or product. From the early days of exchange

economy, price has been the most effecting factor for buying decision. Recently, other

affecting factors have outstripped the price in buying decision.

Albaum and Duerr (2008), Czinkota et al. (2005) and Kotler and Armstrong (2006)

emphasises the meaning of price among other marketing mix elements. They mention

that pricing is only element which is generating revenues and other elements are costs.

Other marketing mix elements do not have so powerful and immediate effect on

company’s sales and profitability. Albaum and Duerr (2008) even wonder that how little

28

attention and research interests the pricing has raise compared to its significance.

Changes in other marketing mix elements will not cause so dramatic or quick responses

in customer or competitors than in pricing. Authors mention that there are several

determinants which have effect on pricing decisions. These determinants can be divided

to external and internal. More detailed determinants include following; costs, market

conditions and customer behaviour, competition, legal and political issues and general

company policies like financial matters, production, advertising etc.

According to Kotler and Armstrong (2006) pricing has changed with fast changing

business environment and the decisions are not so simple for companies anymore.

Recently there have been some events like economic downturn which have made the

pricing even more difficult for companies. Many companies are feeling that they should

only cut the prices, which is damaging their profitability and business. Cutting the

prices is not necessarily the best solution in downturn. Besides that it can lead to lost of

sales, it can also harm the customer relationships in a way that lower price might be a

signal of worse quality. One solution for this issue is to prove the value of product for

customers and then they are ready to pay for value instead of paying some price. Still,

fair pricing is quite big challenge for companies when they need to find the right price

which customers are ready to pay and it gives enough profits for the company.

2.2.1. Pricing decisions

As mentioned earlier (Kotler & Armstrong 2006) pricing is difficult issue for executive

managers and for entire companies. It causes problems, because too often the decision

of reducing prices is done too quickly or too hasty. Often this issue stem from

companies cost-oriented pricing. Companies should consider more customer-valued

pricing and also take the other marketing mix elements into account when doing the

pricing decisions.

The effecting factors of company’s pricing decisions (Kotler & Armstrong 2006;

Albaum & Duerr 2008) can be divided for two categories; internal and external. Internal

factors are things such as marketing objectives, marketing mix strategy, costs and

organizational considerations. External factors include nature of the market and

demand, competition, other environmental factors such as economy, resellers and

government. Factors are portrayed in the figure below.

29

Figure 4. Pricing decisions (Kotler & Armstrong 2006: 309)

It is obvious that marketing objectives (Kotler & Armstrong 2006) will steer the pricing

decisions. Clear objectives will determine whether the price is high, low or something

between of those. Objectives can also be more general than setting a clear target market

for a luxury product. Current profit maximization can be one main pricing goal for

companies and in that way companies try to maximize profits by setting the price high

as possible compared to demand and costs. Market share leadership is another goal for

companies and to obtain the market share leadership companies set the price as low as

possible. Some companies want to offer superior quality and then they try to achieve

product quality leadership. That is, to set the price higher than competitors and also as

signal for consumers that quality is more expensive than standard products. (Kotler &

Armstrong 2006:309-310).

Kotler and Armstrong (2006) emphasise that other marketing mix elements are always

in vital role when the price is set for certain product. All the pricing decisions should be

done consistently with other marketing mix elements. In every case is vital to remember

that consumers rarely make the buying decision only based on price, rather than looking

for best value compared to benefits received. It is also quite clear that cost is one

determinant when setting the price. Costs are especially vital determinants for

companies which represent low-price companies. According to Kotler and Armstrong

(2006:309-314) these companies focus to produce products or services with low costs

that they can compete with low price. Organizational considerations have also an effect

on pricing decisions. There have to be decision inside the company that who makes the

final pricing decisions and who will set the exact prices. These decisions vary between

companies and usually the size of the company and industry has the biggest effect on

these decisions (Kotler & Armstrong 2006).

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Kotler and Armstrong (2006:315-319) state, that external factors which have biggest

effect on pricing decisions are the market itself and demand, competition and economic

conditions. When costs set the bottom line for prices, market and demand will set the

roof for prices. Marketer need to understand the relationship between price and demand

for its product to be able to set the most suitable price. The pricing vary in different

markets, but in the end consumers’ perception about the price is crucial. Consumers

make the final buying decision which is based on material and non-material factors

which makes the pricing a challenging task. There also exist markets where marketers’

efforts like advertising have only little or no effect at all, hence these markets the final

pricing decision is not made inside the company.

Kotler and Armstrong (2006) continues that competitive situation and competitors’

reactions naturally effect on pricing decisions, thus companies have to be ready to react

for competitors’ changes in pricing. Other external factors effecting for pricing are

economic conditions, resellers, governments and social concerns. All of these effects on

pricing and especially economic conditions like recession, when companies have to

thoroughly consider pricing decisions again.

2.2.2. Pricing approaches

As mentioned before there are two different factors (Albaum & Duerr 2008; Kotler &

Armstrong 2006) which will set the bottom line and ceiling for prices. Costs will

determine the bottom line for price which produces enough profits that business is

profitable. Consumers and customers perceptions from value received will define the

ceiling for prices. There is no demand above this price level. To set the price between

these two factors, companies use different pricing approaches. The most common used

approaches are Cost-based pricing, Value-based pricing and Competition based pricing.

According to Albaum and Duerr (2008), Kotler and Armstrong (2006) cost-based

pricing is the simplest way to set a price for a product or services. Authors still remind

that only basic cost-based pricing itself is too simple to implement. This kind of pricing

does not observe the changes which happen in business environment or in competitors

pricing. Cost-plus pricing and break-even pricing represents the most common cost-

based pricing approaches. In cost-plus pricing company simply will add standard mark-

up to the cost. Kotler and Armstrong (2006: 320-321) argue that the problem in this

method is that in most of the cases companies have fixed costs and if the number of

31

units to be sold is lower than expected, standard mark-up is not enough to make profit.

Still, this pricing method is popular, because in some industries all the companies use

this same pricing which makes the competition minor.

Kotler and Armstrong (2006) argue that break-even pricing is another commonly used

cost-based pricing method which is used for example by General Motors. In this method

the break-even point, where certain amount of sold units will cover all the expenses, is

calculated in a break-even chart. This method is also quite simple, but it considers better

the relationship between fixed and variable costs. With this method is also simple to

count that how many units have to be sold if company is achieving certain target profit.

Even though, break-even chart can easily show that which costs should be cut to lower

the break even volume, it is also too simple to be used as only pricing method.

For some time, companies have moved towards more value-based pricing (Kotler &

Armstrong 2006: 323) than using only costs as a base for pricing decisions. Value-based

pricing means that price is on the table during the whole development process and all

other marketing mix elements are also considered when deciding the price. It does not

calculate the price afterwards when all the costs have been summarised, like in cost-

based pricing. The basic difference between these two pricing approaches is that in

value-based approach the starting point is customer and its needs and in the end is the

product itself. Cost-based approach is reversed when the product itself and its costs are

the starting point and it ends to customers. Value-based pricing emphasises in industries

where the additional non-material values can be added to product or service itself.

(Kotler & Armstrong 2006).

Typical value-based pricing approaches (Kotler & Armstrong 2006) are value pricing

and value-added marketing. In short, value pricing means offering some certain quality

or service level in certain price. In practice this means that well known companies

establish less expensive brands from their top brands, when consumers get good quality

in reasonable price. Value-added marketing is more popular these days, when

companies can not only compete with price. Companies can differentiate their products

and services with additional services which can easily add value when the price remains

same. Value added marketing emphasises especially in industries where the pricing is

already intense and there is no room for higher prices.

According to Kotler and Armstrong (2006) third approach for pricing is competition-

based pricing. Competition-based pricing is following the competitors’ prices and price

32

changes. In this approach company’s own demand and costs are secondary issues and

the main attention is in competitor. Company might set own price lower, certain amount

higher or exactly the same price as competitor, but relevant is that all the changes is

made according to competitor. Competition-based pricing is typical to oligopolistic

markets where only few sellers exist and companies easily follow each others prices to

avoid price wars.

2.2.3. Pricing strategies

As discussed earlier in pricing decisions, pricing is never too easy decision to make and

Russian proverb describes the difficulty of pricing decision: “There are two fools in

every market – one who asks too much and one who asks too little” (Kotler &

Armstrong 2006: 322; Jobber 2004: 375). Companies use different pricing strategies to

achieve most suitable price for its product or services which considers costs, demand

and competitive environment. According to Kotler and Armstrong (2006) dynamic

pricing strategies can be divided for three main strategy groups; new-product pricing,

product-mix pricing and price adjustment. These are shown in the table 1.

Table 1. Pricing strategies. (Adopted from Kotler & Armstrong 2006)

New product strategies (Kotler & Armstrong 2006) usually consists from two different

strategies; market-skimming and market-penetration strategies. In short, skimming

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means that company sets a high price for new product and it skims the maximum profits

from different customer segments. Skimming strategy requires that customers in every

segment are willing to pay higher price from the higher quality. To be feasible strategy,

skimming also requires that competitors can not easily enter to same markets and

undercut the company’s price. Jobber adds (2004) that there have to be excess in

demand and among customers there have to be high pressure to buy, for example in case

of an emergency, that higher price is justified. Jobber (2004) reminds that seldom all the

required conditions to implement skimming strategy will apply and it simply means that

companies have to use their own judgement when the skimming strategy is feasible.

Penetration-strategy is opposite for skimming (Kotler & Armstrong 2006; Jobber 2004),

when companies are setting the price low as possible to attract new buyers and to

achieve large market share. By low price companies try to attract new buyers as quickly

as possible and also trying to achieve a position in the markets. Discount retailer like

Wal-Mart is typical company which is using penetration-strategy. This strategy has also

its own requirements from the markets that it is feasible to use. In penetration strategy

the sales volumes are high which allows companies to cut the prices even more in the

future. The main conditions which should exist, that low price strategy is feasible

(Kotler & Armstrong 2006; Jobber 2004); market have to be price sensitive, production

and distribution costs have to decrease when the amount of sales increases and the price

has to be so low that it does not attract competitors to enter the markets. According to

Jobber (2004) likewise in skimming strategy, all required conditions rarely appear at

same time, when companies have to make the last decision to use low price strategy or

not.

Kotler and Armstrong (2006: 333) argues that when product is a part of product mix,

then company has to be ready to change pricing according the changes in other product

mix products. Usually companies are seeking for maximization of profits from total

product mix and that is difficult when all the products have individual costs, demand

and competition. Kotler and Armstrong (2006: 333-336) introduce five different

product-mix pricing strategies which are described shortly below:

• Product line: Companies are developing product lines rather than single products

and they have to decide what kind of price differences they use between product

lines. With product line pricing companies can offer different products in

different price levels.

34

• Optional product: Companies offer some additional or optional accessory with

their main product. Companies have to decide whether to include additional

accessory prices to total price or to price every single accessory separately.

Some car manufacturers use optional product pricing when they price additional

products, which are actually quite important for customers like air-condition.

• Captive product: Companies are selling products which need to be completed

with additional products for example razor blades and printer cartridges. The

main product itself is offered in fairly price, but the real profits come from the

supplying products.

• By-product: With their main product, some companies produce some by-

products. Companies can add the cost from by-product to total price or it can

seek markets for its by-product where it can be sold in any price rather than

paying some extra to get rid of it. Typical companies using this pricing are

producing processed meats or chemicals.

• Product bundle: In product bundle pricing companies put together some

products or services and they offer the bundle in cheaper price than single

products. Important is that bundle is cheap enough to attract customers to buy it

instead of single product. Typical companies which use product bundle pricing

are fast-food restaurants and sport teams which offer season tickets cheaper than

single tickets.

Changes in business environment, competitive situation, economic conditions and

customers’ requirements (Kotler & Armstrong 2006; Jobber 2004; Albaum & Duerr

2008) are some reasons when companies are forced to adjust their basic prices. When

companies are reacting for changes, they can implement price adjustment strategies.

Kotler and Armstrong (2006: 336-345) list six different price adjustment strategies

which are explained briefly:

• Discount and allowance: This strategy appears in many forms, but the main idea

is to speed up the sales and especially in low season. Discount can be offered

from promptly paid invoices or buying large volumes at once. Different

allowances are offered when retailer returns old item back or when retailer takes

part to advertising and sales promotion.

• Segmented: Companies offer different prices from same product for different

segments. The markets have to be segment able and segmented prices have to be

clear for customers that strategy is worth of using. Typical company for using

35

this strategy is operating in aviation business, where prices can change

dramatically in same flight.

• Psychological: Sellers are using the psychology of prices by many different acts.

Use of sale signs, prices ending in number nine, display of products is typical for

psychological pricing. In this strategy sellers count more on human mind, than

economics. Supermarkets and department stores often use this strategy.

• Promotional: Promotion is used together with pricing to attract customers and

most of the times companies temporarily lower some prices under of list price.

Aim is to allure customers inside of store with some specific low price and

hoping that they will buy normal priced products at same time. This strategy can

be effective if it is used some times, but it can be also harmful if it used too

often.

• Geographical: Seller has to make the decision that if it is pricing its products

according to customers’ location or not. Additional costs come from the

shipping costs and seller has several options to price the shipping. It can use

same pricing for every customer despite the location or it can price shipping

costs by the geographical location. Important is to listen customers and observe

competitors pricing.

• International: Companies which are selling their products to international

markets face pricing issues which are based on many different factors like

economic conditions, competitive situation, laws and regulations, consumer

perceptions, local market conditions and local price level. Costs are still the

main determinant whether the markets are local or international. In most of the

cases companies are forced to sell the products with higher prices due to product

modifications, import tariffs and taxes, insurance and physical distribution.

Companies are creating the base for their pricing (Kotler & Armstrong 2006; Jobber

2004; Albaum & Duerr 2008) by pricing approaches and using different pricing

strategies, but most of the time pricing is also observing of customers, markets and

competitors. Today sudden changes in these factors are more than expected and then

companies have to change their prices. Sometimes the changes require price increase

and some of the cases require price cuts. According to Kotler and Armstrong (2006)

company can already in advance develop some responds for competitors’ price changes,

because for these changes the response should be rapid. These possible responds are

shown in the figure 5.

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Figure 5. Assessing and responding to competitor’s price changes (Kotler & Armstrong 2006: 347)

First stage is to count that how the price lowering of competitor will affect on

company’s market share and profits. If company thinks that it can harm the sales and

profits, it should consider some of the responses. Responses can be reducing the own

price, raising the perceived quality of its product, improving the quality and price at

same time or launching the low-price brand which is fighting against competitors price

cut. Kotler and Armstrong (2006: 347) reminds that when companies are observing

competitors’ changes in pricing, it has to also consider its own product. Decision from

price changes can not be made only by competitors changes, rather than extending the

analysis to own product’s life cycle, importance in product mix and possible reactions

of consumers.

Pricing is difficult and multidimensional task for marketers (Kotler & Armstrong 2006;

Jobber 2004; Albaum & Duerr 2008) and there exist several factors which have to be

included to final decision determinants. These factors can be divided roughly to two

categories; external and internal. One important external factor is economic conditions

like recession. Recession affects to other external factors like consumers and

competitors and these will affect to company itself. Companies should consider their

37

pricing strategies (Kotler 2005) again during the recession and after it, because it creates

challenges, but it can also offer opportunities to make difference against competitors.

2.3. Distribution

Many terms in business environment can be confusing and there are different

definitions for them. According to Rosenbloom (2004) distribution and marketing

channel are also those terms and those have different definitions which are dependent

from the perspectives. Manufacturers and consumers have their own perspectives, but

marketing channel is defined from the managerial viewpoint (Rosenbloom 2004: 8) as

the external contactual organization that management operates to achieve its distribution

objectives. Rosenbloom (2004) specifies that parties which represent buying, selling or

transferring roles are considered to be members of the marketing channel.

Czinkota et al. (2005) gives definition for international distribution and that is the

design and management of a one system which controls the forward and reverse flow of

materials, services and information into, through, and of one corporation. Kotler and

Armstrong (2006: 362) defines marketing channel as a set of interdependent

organizations which have involved the process of making a product or service available

for use or consumption by the consumer or business user. According to Kotler (2005:

42) marketing channels are dynamic, because companies have to be ready to add new

channels and drop off the weakest channels all the time. Kotler adds (2005) that when

using marketing channels in a right way those can create competitive advantage, but

poor planning and using channels will cause competitive liability. Already the wide

gamut of definitions of distribution reveals that it is a wide and complex concept.

Rosenbloom (2004: 4-8, 25) argues that emphasis on marketing channels have been

minor lately. Other elements of marketing mix- product, price and promotion have been

in the centre of academic discussion and research, but recently the emphasis on

marketing channel strategy has grown. There are four main reasons why the meaning of

marketing channels has risen:

• The explosion of IT and E-commerce

• The greater difficulty in gaining a sustainable competitive advantage

• The growing power of distributors, especially giant retailers

• The need to reduce distribution and marketing channel costs

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Rosenbloom (2004) says that all these reasons together have made the meaning of

marketing channels more important for companies and researchers. Marketing channels

and distribution no longer represents minor role in larger scale of strategic marketing

management. Companies have realised recently that the role of efficient marketing

channels can not be emphasised too much, when striving the success in the competitive

markets. To be successful, companies have to develop and operate the marketing

channel in a way that it supports and enhances other strategic elements such as product,

price and promotion.

Rosenbloom (2004) argues that marketing channel strategy is one of the main strategies

of marketing management and precisely it goes under of the distribution section in the

total marketing mix. Distribution and distribution strategy consists from two main

components; channel strategy component and logistics management component. This is

illustrated in the figure x. According to Rosenbloom (2004) these two components are

close to each other, but the main difference is that channel strategy is much wider

component than logistics management. Channel strategy basically consists from the

entire process of setting up and operating the distribution. Logistics management is

narrower concept and it simply means the providing product availability in the wanted

place at right time. It is clear that companies have to first formulate the channel strategy

before they can plan the logistics management.

Figure 6. Distribution variable divided into channel and logistics components (Adopted from Rosenbloom 2004)

39

Rosenbloom (2004) state, that usually marketing channels have a series of different

flows. These flows tie channel members together in the distribution of material and

services. According to Rosenbloom (2004: 14) the most important flows are:

• Product flow

• Negotiation flow

• Ownership flow

• Information flow

• Promotion flow

Rosenbloom (2004: 14-15) says that product flow means all the physical movements of

the product from the manufacturer through all the parties which take part to physical

distribution of product, to its final users. Negotiation flow is usually considered as the

interplay of buying and selling functions. Ownership flow shows when the title of the

product moves from manufacturer to final end users. Information flow means the

movements of any kind of information concerned the product. It is important that all the

parties are involved including the end users and it also vital that information flow goes

in both directions. Promotion flow refers to different communication methods like

advertising, personal selling, sales promotion and publicity which try to improve the

sales of product. Usually in this flow advertising agency is involved to flow by offering

the advertising element. Channel managers task is to effectively manage and coordinate

all these flows that the company can offer its products in required place at right time.

According to Rosenbloom (2004) one of the channel manager’s main tasks in the

company is to decide whether to use intermediaries such as wholesalers and retailers in

the distribution organization or not. Economic considerations are in vital role when

making the decision and two basic factors lies behind the decision; specialization and

division of labor and contactual efficiency (Rosenbloom 2004: 16). The idea of

specialization and division of labor is based on early finding of Adam Smith. Smith

found that specialization of factory workers to one special operation will increase the

output of the factory. This finding is in vital role also in the decision of distribution.

Distribution can be done by self or it can be divided to those parties which are experts in

their own field. Contactual efficiency means the level of negotiation between buyers

and sellers. Input in negotiation relationship is the negotiation effort and output is the

distribution objective. Companies have to decide that will they make the contacting to

retailers by them selves or are they using wholesalers as an intermediary. Rosenbloom

40

(2004) argues that these two factors offer basic framework for the decision how to

incorporate intermediaries to distribution organization. He still reminds that many other

factors have to be included for the consideration.

Rosenbloom (2004) state that channel structure is one vital concept in distribution.

Concept of channel structure refers usually to length of channel i.e. number of levels of

intermediaries in the channel. Wider definition is a group of channel members which

have different tasks in the distribution. According to Rosenbloom (2004) many

companies use a combination of different structures and these days it is difficult to

achieve distribution objectives by using only one structure. This multi-channel structure

is more common these days due to increased amount of E-commerce.

Rosenbloom (2004) reminds that there is also group of participants which do not take

part for negotiation of buying, selling or transferring, but still are involved for entire

process. These non-member participants and facilitating agencies belong to ancillary

structure. In short, this group assists channel members in distribution tasks. Rosenbloom

(2004) says that channel manager’s one main task is to build the optimal channel and

ancillary structure which support the distribution objectives. This task is challenging

because manager has to deal with non-member participants of distribution channel.

Other challenges companies and channel managers face when choosing the proper

channel members, evaluating performance of members and choosing the role of

members in decision making. According to Rosenbloom (2004: 24-26) setting up and

successful operating of distribution is challenging task.

2.3.1. Distribution strategy

As mentioned before, (Rosenbloom 2004) distribution strategy is divided for two main

components; channel strategy component and logistics management component.

Definition for channel strategy can be modified from common marketing strategy

definition which has been created by Philip Kotler. Channel strategy can be viewed as

the wide principles by which the firm expects to achieve its distribution objectives in its

target markets. Even though the channel strategy represents only narrow part of firm’s

total marketing strategy among other strategic variables, it might have huge significance

(Rosenbloom 2004: 152).

According to Rosenbloom (2004) when companies start to build up and design their

marketing channels and channel objectives, they have to consider many questions. The

41

role of distribution in total strategy and objectives, role of distribution in marketing mix,

selection of channel members, managing of marketing channel and evaluation of

marketing channel. Crucial decision is also the meaning of distribution strategy and

objectives, in company’s long-term strategy and objectives. All these questions above

should be answered properly that company can build up and manage profitable and

sustainable channel strategy.

Rosenbloom (2004: 160-179) argue that there are some conditions which determine the

meaning of distribution in total marketing mix. If some of these following conditions

exist, then the distribution should be emphasised; distribution is the most important

variable from all the marketing mix elements for satisfying the demand of customers

and target market, competitors have a high level of similarity in the other marketing mix

elements, there is a high degree of competitive vulnerability because of competitor’s

neglect of distribution and distribution can add firm’s competitiveness by creating

synergy benefits from other marketing channels. These conditions should be examined

thoroughly by the firm’s highest management level that firm can define the importance

of distribution in the total marketing mix.

Most important components according to Rosenblom (2004) in the marketing channel

strategy are designing the marketing channels, selection of channel members, managing

the marketing channel and evaluation of channel member performance. When firm’s

management level is designing the marketing channels, the channel strategy should

have the biggest importance. In other words, strategy should guide the designing and

planning process in a way that firm could gain competitive and differential advantage

from it.

Rosenbloom (2004) continues that selection of channel members should reflect from the

overall strategies and objectives of the firm. Those channel member candidates who are

capable to implement and follow the strategies efficiently, are in strong position.

Managing the marketing channel is always difficult task and there is no one way to do

it. Management level should decide that how close relationship should be created with

channel members, how to motivate the members and if marketing mix could be used to

enhance the cooperation with members. Answering these issues might help to manage

the entire marketing channel. Finally, the evaluation of channel members performance

should be done efficiently and continuously to assure the efficient activity of marketing

channel. Designing the distribution and channel strategy are described also in the figure

7.

42

Figure 7. Design of channel strategy (Adopted from Rosenbloom 2004).

Rosenbloom (2004) argues that logistics management component presents the smaller

part of entire distribution strategy. Short definition for logistics is which is planning,

implementing and controlling the physical flows of materials and final goods from

original point of manufacturing to final customer. In other words the role of logistics is

to get the right amount of products to right place in required time limit. Rosenbloom

(2004) continues that logistics is also known as physical distribution and lately the term

supply chain management has come more common. The main principle of all of these

terms is that building of strong cooperation among channel members through effective

management is the key for success. Despite the smaller role of logistics component its

meaning should not be underestimated.

According to Rosenbloom (2004: 388-389) most of the logistic systems involve

components such as transportation, material handling, order processing, inventory

43

control, warehousing and packaging of goods. Every logistic system somehow differs

from others, but these are the most common basic elements. For long time logistics was

considered mainly as transportation, but Second World War changed the system and

development of logistics. Effective logistics was finally in important role for winning

side of the war and that was one reason for development of logistics systems in general.

Transportation (Rosenbloom 2004: 389) is one the most fundamental and obviously

necessary component of any logistics system. Clearly, in all cases the products must be

delivered or physically moved from the point of origin to its final location that

transaction will be completed. The component of transportation is also usually the most

expensive part of logistics. Rosenbloom (2004: 391) describes materials handling as all

the actions and equipments which are required to move and place the materials in

storage areas. Materials handling include many issues which should solved as the

distance of products, storage, shipping, receiving and the mechanical equipment which

should be used.

It is clear that with efficient decisions companies can save lots of time and money in

material handling. The role of order processing is usually underestimated in entire

logistics system, but Rosenbloom (2004: 391-392) reminds that often order processing

is the key for successful logistics system. Properly planned and implemented order

processing saves time in entire process and same time it can add value for customers if

the order is processed faster than expected. Because of this, the importance of order

processing should be highlighted in logistics planning.

Inventory control (Rosenbloom 2004: 392) means the firm’s attempt to hold the level of

inventories low as possible, but same time in the level which will meet the demands of

customers. Inventories causes only costs for the companies, but same time those are

necessary to meet the customer demand. This means that efficient inventories and right

amount of inventories can help the companies to cut the expenses from logistics.

Warehousing in logistics system (Rosenbloom 2004: 393) have the role of holding the

products until those are sold to final customers. Warehousing is considered as one of the

most challenging components of entire logistics system. The reason for this lies behind

many issues which are related to warehousing decisions such as the location of

warehouse, the number of warehouse units, the size of units, the design of units and the

ownership of these units. All these issues should be solved with the help of experts in

detailed field. Careful and proper planning of warehousing can help companies to avoid

44

the biggest minefields of warehousing such as overcapacity. Last component of logistics

system is packaging (Rosenbloom 2004: 394) which has also important role in cost

saving of logistics system. Well designed packaging can help other functions like

transportation, materials handling, order processing and inventory to make the entire

process more efficient and same time cost efficient. In other words, from the viewpoint

of logistics, packaging is much more than promotional attraction for consumers.

Actually, packaging has vital role in logistics dimension and it can make the significant

difference in logistics system compared to competitors.

2.3.2. Channel decisions

Rosenbloom (2004) have argued that marketing channels in general includes several

issues which have to be solved. Kotler and Armstrong (2006) adds that the objectives of

marketing channels are in crucial role when looking for solution for these issues. In the

designing of marketing channels companies have to analyze the customer needs and

actual channel objectives. Companies have to also identify the best alternatives for

marketing channels and be able to evaluate those. These actions in designing add the

effectiveness of entire process and possibility to create functional marketing channels.

Kotler and Armstrong (2006: 372) argue that customer’s need is in vital role in every

business. Customer’s need is also important to notice in marketing channel designing.

Optimal situation would offer fastest delivery and best assortment in cheapest price for

customer, but companies have to balance customer’s need against costs of marketing

channel. Kotler and Armstrong (20069 continues that there are several factors which

influence for setting the objectives of marketing channels like the products, marketing

intermediaries, competitors, financial situation and the environment. Environment and

economic conditions naturally may affect to objectives and designing. For example in

recession producers may want to cut the costs from marketing channels to avoid growth

in final price.

When companies have found the most appropriate channel objectives (Kotler &

Armstrong 2006: 373-375) next they should identify best channel alternatives. In

identifying companies should focus on types of intermediaries, the number of used

intermediaries and responsibilities of every member in the marketing channel. In all of

these elements the costs of intermediaries and the financial situation of company is in

crucial role. Companies need to carefully and properly evaluate the financial costs of

used intermediaries and compare it to objectives of the marketing channel. In final

45

evaluation between different alternatives economic criteria is also in crucial role.

Control issue should also be included for final evaluation, because using of many

intermediaries means that companies have to share the control for many members.

According to Rosenbloom (2004), Kotler and Armstrong (2006) and Czinkota et al.

(2005) in today’s global business environment and in global competition companies can

not anymore bypass the prospects of international markets. Globalization and

international markets have to be considered also in distribution and channel strategies.

The growth of business environment in international markets creates lots of

possibilities, but also challenges. Rosenbloom (2004) argues that when companies

design international channel strategy, it follows mostly the same structure as in

domestic markets, but companies have to also consider issues which are related to socio

cultural, technical, legal and economic differences.

Rosenbloom (2004) earlier stated that explosion of IT and E-commerce has increased

the interest towards distribution and marketing channels. In the beginning of

development of electronic marketing the forecast was that all the conventional

marketing channels as stores and shopping malls will be eliminated. Despite that

forecast of superior position of electronic channels did not come true, online shopping

and electronic commerce has taken its place as one option for marketing channel. Today

rapidly growing distribution of internet connections world wide only enhances the

companies to use electronic channels. Rosenbloom (2004: 458) still reminds that use of

electronic marketing channels have also disadvantages as well as advantages. Biggest

advantages among global scope and reach are related to rapid transaction processing,

information efficiency, data-based management and lower costs of distribution.

Disadvantages (Rosenbloom 2004: 458) related to electronic marketing channels are

quite obvious as advantages and those are related to lack of contact to actual physical

product, fulfilment of logistics not at internet speed, confusion and cumbersomeness of

internet and security issues. Channel managers have to deal with these advantages and

disadvantages and figure out that how to gain biggest benefit from electronic channels

alongside with conventional channels. The existence of electronic channels has

increased the complexity of marketing channels, because today companies have to deal

with multi channel environment.

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2.4. Promotion

According to Kotler and Armstrong (2006), Czinkota et al. (2005), Albaum and Duerr

(2008), Shimp (2003), Hackely (2005) and Chaston (1999) one of the marketers task is

to plan and organize marketing activities and assemble fully integrated marketing

programs so that these will create, communicate and deliver value for the consumers.

Marketing activities comes in all forms of marketing-mix tools and promotion is one of

these tools. Marketers need to do decisions between marketing-mix tools product, price,

promotion and place and they need to do these to influence on their final consumers.

Promotion includes features such as sales promotion, advertising, personal selling,

public relations and direct marketing. Kotler and Armstrong (2006), Shimp (2003) and

Hackley (2005) argues that companies can change its price, sales force size, and

advertising expenditures in the short run, but developing of new products and modifying

of distribution channels companies do only in the long run. This statement proves that

cutting the advertising expenditures is considered short run reaction for example in the

need of cost saving in recession.

Kotler and Armstrong (2006) states that these days marketing is much more than

developing a good product, pricing it in profitable way and making the purchase

possible for target customers. Companies need to go beyond that and communicate

actively with current customers and possible customers. Continuous communication

with customers is in vital role when companies are building their customer relationships

and it is also vital in maintaining of relationships.

Kotler and Armstrong (2006) continues that companies’ promotion mix, which is also

called marketing communication mix, consists from different elements of promotion.

Most common promotion elements are advertising, sales promotion, public relations,

personal selling and direct marketing. Every company decides individually that how

they use and blend these promotional elements that they can achieve their promotional

objectives. Kotler and Armstrong (2006) still reminds that communication itself goes

beyond of these promotion tools. All the other marketing mix elements product, price

and place are communicating to customers in their own way. Management levels

responsibility is to take care that all the elements are communicating consistently.

According to Kotler and Armstrong (2006), Czinkota et al. (2005), Albaum and Duerr

(2008) Shimp (2003) and Hackley (2005) in today’s global market’s many things

change rapidly and marketing communication is no exception. Two major factors are

47

changing the nature of marketing communication; fragmented markets which are

moving away from traditional mass marketing and speed of development in

communication technology. Today companies can not anymore rely only on mass

marketing as a tool of communication, rather than focusing on smaller segments where

every customer relationship is build with personal message. The development of

communication technology is speeding up this change, when the social media and other

forms of new communication methods are coming more common for companies. Kotler

and Armstrong (2006: 430) and Chaston (1999) emphasises that because of these

changes there is a clear need for integrated marketing communication which is

illustrated in the figure 8.

Figure 8. Integrated marketing communications (Adopted from Kotler & Armstrong 2006)

In short, the aim of this concept (Kotler & Armstrong 2006: 430) is to integrate and

coordinate the firm’s communication channels in a way that customers can have clear

and consistent message about the firm and its brands. The need for integrated marketing

communication has also risen, because often companies’ different communication

sources offer different message about the company and its products. Companies need to

take care that every contact with customers delivers the same message, whether it comes

48

from internet pages or from the mouth of sales representative. It is clear, that the

consistent communication with customers emphasises all the time, but especially rough

times like economic uncertainty.

2.4.1. Promotion strategy

Kotler and Armstrong (2006: 443-444) represent two basic strategies in promotion;

push promotion and pull promotion. In short, push strategy means that the product is

pushed to final customers through different distribution channels. In use of promotion

tools it means that manufacturer uses its marketing activities such as personal selling

toward different channel members to encourage them to promote the product for the

end-users of product. Retailers and wholesalers use their own marketing activities

towards end-users. In opposite, pull strategy can be considered as straight influence to

end-users and customers. Producers use different marketing activities and promotion

tools straight towards end users to catch their attention. Advertising and sales promotion

are most common tools which are used in pull strategy. These marketing activities

usually require lots of effort and assets from the company. These strategies are

described in the figure 9.

Figure 9. Push versus pull promotion strategy (Adopted from Kotler & Armstrong 2006)

49

Rough statement (Kotler & Armstrong 2006: 444) about the use of push and pull

strategies were that industrial companies use only push strategies and pull strategies are

only for direct-marketing companies. Today companies can not go by only one strategy,

rather than mixing them up according to product, target customers and product’s life

cycle. For example big FMCG-company Kraft use mass media advertising to attract

consumers and it also use huge sales force to push its products through the different

intermediaries.

According to Kotler and Armstrong (2006) the use of different promotion strategies and

promotion tools depends also about the product itself and its stage in life cycle. Often

mass media tools as advertising and sales promotion are used when the product is

considered as consumer goods. On the other hand, tools like personal selling is used

more when companies are selling expensive goods which require expertise from both

sides. The stage of product also affects to promotion tool which is used, i.e. the meaning

of advertising in the introduction stage is much bigger than in the mature stage.

Kotler and Armstrong (2006), Czinkota et al. (2005), Albaum and Duerr (2008) Chaston

(1999) state that there are several issues in building of promotion strategy which should

be considered. Companies first need to define the objectives for promotion strategy,

identify the target audience and decide the budget for promotion tools. After this,

companies still need to decide the media to be used, content of message and amplitude

and density of messages. Finally companies need to collect feedback from the

promotion tools and messages which have been used.

Today the issue of social responsibility (Kotler & Armstrong 2006) is topic which can

not be passed by any company. This topic should also be included for consideration of

promotion strategy. All these decisions which have to be made concerning promotion

proves that creating profitable promotion strategy involves many challenges as in

product, price and distribution strategies. Creating a sustainable and profitable

promotion strategy is not coming any easier during rough economic periods when

promotion is usually the first part of marketing which is decreased.

2.4.2. Advertising

The need for mass media promotion (Kotler & Armstrong 2006, Czinkota et al. 2005,

Albaum & Duerr 2008) has grown because of development of companies and products

in industrialized world. It is not enough that companies are developing and producing

50

good products or services, they have to inform their customers about themselves and

their products. Earlier presented mutual marketing communication (Kotler & Armstrong

2006) with customers and consumers is necessary today. Advertising is one form of

mass-promotion, which can reach wide audience and it can create wanted position for

product in customer’s mind. Kotler and Armstrong (2006: 455) continues that

advertising is considered as any paid form of nonpersonal presentation and promotion

of ideas, goods or services by an easily identified sponsor. Advertising is considered as

good way to inform and persuade consumers and customers when the target audience is

broad. Even though advertising is usually thought as a source for global companies to

send their messages for consumers, advertising is still broadly used by non-profit

organizations and it can be used also in smaller scale.

Kotler and Armstrong (2006: 455) argues that advertising can be divided for four main

decisions from the management point of view. These decisions are advertising

objectives, advertising budget, advertising strategy and finally evaluation of advertising.

Usually every action has to have objectives that it can be measured afterwards and

advertising do not make exception in here. Advertising objectives as well as other

promotional tools belong to bigger wholeness to promotion strategy, which determines

the main direction of advertising objectives.

Other elements which usually influence for objectives are target market and positioning

of product or company. The purpose of advertising is also affecting to objectives of

advertising. According to Kotler and Armstrong (2006) the purpose of advertising is

commonly divided for three different advertising types; informative, persuasive and

reminding. Informative advertising is used a lot when company introduces a new

product, persuasive advertising is used when competition grows in one particular

product or product group i.e. companies create selective demand. Finally reminding

advertising is used when company wants to consumers think their product which

already in mature stage.

Next stage in advertising decisions (Kotler & Armstrong 2006: 456) is the setting of

advertising budget. Product’s stage in life cycle has big influence for the decision; new

products need more advertising than the products in mature stage. Gaining a market

share is another source for bigger advertising budget and usually undifferentiated

products and brands also require more investments on advertising than products which

are unique or differs a lot from mainstream. No matter what, deciding the advertising

51

budget remains a difficult task, because no company has found statistical tool to

measure the relationship between promotional spending and sales.

According to Kotler and Armstrong (2006: 457-466) main parts of advertising strategy

are the selection of clear and consistent message and choosing the proper media for it.

Earlier the message creation and media planning were separate functions, but today due

to fragmented media, these functions have to work close to each other. This emphasises

also from the integrated marketing communication point of view.

Kotler and Armstrong (2006: 463-469) continues that in strategical decisions

management level have to decide the frequency and reach of advertising, type of media

and media timing. One big decision in the advertising strategy is also that will the

company design and produce the ads by themselves or will they use advertising agency.

Both options have their own advantages and disadvantages, but the decision is often

based on advertising budget. In strategic decisions management will have many other

issues if company is operating in global environment due to cultural and legal

differences. Lately, the development of different communication channels has made the

planning of advertising strategy even more challenging.

Finally companies need to evaluate (Kotler & Armstrong 2006: 467-468) the

advertising which has been executed. Evaluation about advertisement itself can be done

already before releasing it. Usually companies test the advertisement before hand by

randomly chosen target audience. Evaluation is done also afterwards because companies

need to know if the advertisement had the desired influence on customers and end-users.

As Kotler and Armstrong (2006) earlier mentioned, the measurement and evaluation of

advertising compared to sales is difficult task, because sales is affected by many other

factor too. Companies have created different tools where the expenditures used for

advertising in specific area is compared to sales in same area, but still the benefits from

advertising is inexact area for companies and science. This may occur in rough times

when companies need to cut the expenditures and usually the advertising is the first

target.

2.4.3. Sales promotion

Another promotional tool, sales promotion, (Kotler & Armstrong 2006, Czinkota et al.

2005) usually works close with advertising as a supporting tool. According to Kotler

and Armstrong (2006: 469) sales promotion is considered as a short-term incentive

52

which has the purpose of encouraging and enhancing the sales of a specific product or

service. Sales promotion is coming more popular among the companies that sell

consumer goods. Competition is so intense between these companies that they are eager

to seek some other ways to influence consumers than advertising. The standardized

products of manufacturers are increasing the use of other tools like sales promotion to

enhance the sales.

Kotler and Armstrong (2006) adds that today companies consider sales promotion as an

easy and relatively cheap way to enhance the sales in short-term. Sales promotion is not

anymore tool for companies to stimulate consumers, rather than having the influence to

all participants. Sales promotion is used also towards to retailers and wholesalers,

business customers and even members of the company’s own sales force to increase the

sales. Companies need to focus also on the development of sales promotions if they

desire grow in the total sales. In other words, the variety of different tools of sales

promotion is growing rapidly today and it does not make the differentiation any easier.

Usually the sales promotion (Kotler & Armstrong 2006) occurs in many forms and it

can be categorized to three different target groups which it is trying to influence. These

groups are; consumers, intermediaries and business customers. The most used consumer

promotion tools (Kotler & Armstrong 2006: 470) are samples, coupons, cash refunds,

price packs, premiums, advertising specialties, patronage rewards, point-of-purchase

promotion and contests. Marketers’ task is to decide what kind of mix of different

promotional tools will enhance the sales. The budget and objectives of promotion

strategy also gives their own limitations for the use of sales promotion tools.

Kotler and Armstrong (2006: 473) argue that sales promotion tools are used also

towards intermediaries and business customers. Actually authors state that the used

budget towards retailers and wholesalers is much bigger than the budget for consumer

sales promotion. Manufacturers use same tools for intermediaries than they use for

consumers like contests and premiums but they also can use special discounts and

allowances. These tools are also known as trade promotion tools, but they have the

same purpose like all other sales promotion tools; enhance and increase the sales in

intensive competition. Kotler and Armstrong (2006) continues that in business-to-

business sales companies also use different sales promotion tools and the purpose is to

generate new business opportunities, enhance the purchases and motivate the sales

force. Special tools in b-to-b promotion are conventions and trade shows which have

important role among companies which are selling their products for industrial

53

customers. Companies also use different tools to motivate their sales force and the most

common tool is to set up sales contest for salespeople or dealers against certain prize or

bonus.

In the use of sales promotions (Kotler & Armstrong 2006, Czinkota et al. 2005, Albaum

& Duerr 2008) there exists the same paradigm like in other tools of promotion. First

marketer need to define the objectives, create strategy and finally evaluate the results

from sales promotion. Kotler and Armstrong (2006: 469-475) reminds that even though

sales promotion can enhance the sales in short-term, it should not be used only for that

rather than building a long-term customer relationships with the help of sales

promotions. The objectives of sales promotion vary according to target group, but in the

end the sales promotion must be coordinated properly with other promotional tools that

companies can achieve actual benefits from those. The planning and designing of sales

promotion emphasises during rough economic periods, if it is considered only as short-

term tool.

2.4.4. Public relations

Kotler and Armstrong (2006), Czinkota et al. (2005), Albaum and Duerr (2008) state

that public relations are considered also as mass-promotion tool as well as advertising

and sales promotion. The main idea of companies’ public relations is to build good

relations with all the company’s publics by gaining favourable publicity and good

corporate image. It also means the handling of unfavourable rumours and stories about

the company. Large companies might have their own public relations department which

take care about following functions such as; press relations, product publicity, public

affairs, lobbying and investor relations.

In short, (Kotler & Armstrong 2006: 476) public relations can be used to promote

products, people, places, ideas, activities, organizations, cities and nations. In business

public relations are used for building of good relations with consumers, investors, media

and communities. Good example from successful use of public relations is city of New

York when it launched its publicity and advertising campaign of “I love New York” and

it gained a huge increase in amount of tourists yearly.

According to Kotler and Armstrong (2006: 476-477) lately there has been some debate

about the role of PR in marketing. Some experts of marketing think that advertising

does not build brands, but PR does. The use of advertising requires financial

54

investments, but PR can have strong impact on public awareness with much lower cost.

In PR, just building interesting story about the company might lead a strong impact on

every participants of company’s business. There has been argument that PR is more

communication with various publics of the company than marketing. Despite the

different views about the role of PR in promotion, it should be consistent with other

elements of promotion that companies can build and maintain a certain message about

the company.

Kotler and Armstrong (2006) state that there are several tools which can help companies

to handle their public relations like news, speeches, other written materials, special

events and audiovisual materials. Authors remind that most important consideration is

that how and when to use these tools after creating the strategy and objectives for the

PR. As Kotler and Armstrong (2006) mentioned before the consistent message with

other marketing mix elements is also vital in decisions of PR.

2.4.5. Personal selling and direct marketing

According to Kotler and Armstrong (2006), Czinkota et al. (2005), Albaum and Duerr

(2008) personal selling and direct marketing are also considered as main elements of

promotion. Kotler and Armstrong (2006: 487) continues that usually personal selling is

considered only as selling of products or services of business organization by specific

sales force. Actually, many other actors than business organizations perform different

personal selling daily like colleges, churches, museums, art organizations and even

governments. In other words, personal selling is quite important form of promotion for

different organizations.

Kotler and Armstrong (2006) state, that personal selling is interpersonal form of

promotion mix. In contrast, another form of promotion mix, advertising, is considered

more as one-way and non-personal communication with target customers. Personal

selling is two-way communication between a representative of business organization

and individual customer which happens by face-to-face, by telephone or by other

means. It’s clear that the type of company or organization determines the form of sales

force, but in every case the sales force is in vital role. Kotler and Armstrong (2006: 488)

argues that means of personal selling can be modified even by every customer and it

offers a good way to communicate with customers. Communication with customers

through sales people offers also a good way to collect important feedback, same time

55

when the company starts to build long lasting relationship via personal selling. Due to

these reasons the role of personal selling should be emphasised in promotion mix.

Managing the sales force is in vital role in success of entire company. Kotler and

Armstrong (2006: 488-489) define that managing the sales force means analysing,

planning, implementing and controlling the actions of entire sales force. This entire

process involves actual actions such as designing strategy, structure and recruiting, and

finally selecting, training, compensating, supervising and evaluating the organizations’

entire sales force. These different phases of sales force management are illustrated in the

figure 10.

Figure 10. Different phases in sales force management (Adopted from Kotler & Armstrong 2006)

Managing of sales force (Kotler & Armstrong 2006) involves many issues which are

related to structure of sales force, strategy, size of sales force, the used method and

channel and evaluation of performance. These issues should be solved accordingly that

company can achieve actual benefits from the personal selling function.

Kotler and Armstrong (2006) state, that issues which should be solved first from

managerial point of view are the strategy and structure of sales force. Most typical

structures are territorial, product and customer structures. In territorial structure sales

force has been divided by geographic areas and every sales person has his own

responsibility area. Product structure means that every sales person has his own product

or product group which he is selling in whole operating area of the company. In some

56

cases the sales responsibility have been divided by certain customers that every sales

person has his own customer or industry which he is selling. These are the most

common types of structure, but Kotler and Armstrong (2006: 490) reminds that today

almost every company uses a mixed structure of sales force. Every solution about sales

force structure depends about the internal and external factors which companies face.

There is no one most suitable structure, rather than every company need to find out their

own structure.

Strategy of sales force (Kotler & Armstrong 2006: 490-494) usually concerns the size of

sales force and the inside and outside sales force. The size of company determines

usually directly the size sales force, but some companies use mathematical formulas to

divide the certain workload for sales persons. Management level also have to decide that

will they use inside sales persons or only outside sales persons. Inside sales personnel

can lighten the work load of outside personnel by assisting them in different tasks, but

the issue is to decide the amount of outside personnel compared to inside sales

personnel. In some cases companies use different teams in sales tasks, but the roles of

team have to be clear that company can avoid unnecessary confusion of customer.

According to Kotler and Armstrong (2006) designing of recruiting and the selection of

sales personnel are also initial tasks of building a sales force. Companies need to pay

attention for recruiting, because recruiting a wrong person might have high cost in time

and money. The meaning of recruiting process is emphasised by Kotler and Armstrong

(2006: 494) who state that in typical sales force the top 30 percent of the sales people

might bring about 60 percent of total sales. Kotler and Armstrong (2006) continues that

there are four different key talents which good sales person posses; intrinsic motivation,

disciplined work style, ability to close a sale and the ability to build relationship with

customers. All these four talents should be emphasised in selection process of sales

personnel.

Training and compensating (Kotler & Armstrong 2006) salespeople are the next issues

in managing of sales force. Today there are several examples how the time and money

used for training pays itself back and that’s why companies should not cut expenditures

from training. Depending on the size of the company training might take few days or

even a year, but the main idea is that without proper training sales force can not make

profit. Compensating is a must for companies which want to attract top sales personnel.

Companies need to make the decision that what is the right mix of fixed and variable

compensations. Today many companies are in favour of compensate salespeople from

57

building a long-lasting relationship rather than compensating from short-term sales

which might be harmful for the business in long-run.

Supervising and evaluation (Kotler & Armstrong 2006: 497-500) of salespeople are the

last, but not least issues in managing of sales force. Every employee need to be

supervised, but especially salesperson if he or she has clear objectives in certain time

period. Kotler and Armstrong (2006) continues that management level gets information

about the performance of sales force through different sales reports, but it is vital that

the sales are measured thoroughly and compared to objectives that proper feedback can

be given. Final evaluation has crucial role in many functions and it should be not

underestimated in performance of sales force, in a sense that it can offer points for

development.

According to Kotler and Armstrong (2006: 503) direct marketing is also one main form

of promotion. Other elements of promotion presents more mass marketing like

advertising which is aiming to attract broad markets, contrary to direct marketing which

focuses on narrowly target, individual promotion. Today the markets and customer

segments are so fragmented that companies can not rely only on mass marketing when

trying to attract customers and consumers. Direct marketing with different forms, offer

an easy and individual way to promote products or services to more targeted customer

segments.

Earlier many companies have thought direct marketing (Kotler & Armstrong 2006) as a

distribution channel or a supplementary channel for marketing their goods, but the

dramatic development in IT (Rosenbloom 2004) and database technology has changed

it. Some companies have used the advantages of new technology and they might use

direct marketing as their only approach of promotion. According to Kotler and

Armstrong (2006: 505) direct marketing can bring benefits to both buyers and sellers.

For buyer it is convenient and easy way to order a product or get information about it

through web sites of the company. For seller direct marketing offers many benefits like

time and cost savings, but maybe the most important is that through direct marketing

seller can build individual relationships and communicate with customers interactively.

According to Kotler and Armstrong (2006: 508) the main forms of direct marketing are;

telemarketing, direct-mail marketing, catalogue marketing, direct-response television

marketing, kiosk marketing, online marketing and face-to-face marketing. The forms

are shown in the figure 11.

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Figure 11. Main forms of direct marketing (Adopted from Kotler & Armstrong 2006)

Kotler and Armstrong (2006) argue that using the telephone in direct marketing has

become one of the major tools in direct marketing. Telephone has been a major tool for

B2C marketing, but it has also extensively increased in B2B marketing. Use of

telephone in direct marketing is efficient, but it requires a lot of labour which increases

the costs of it. Lately many consumers have been annoyed by too enthusiastic

telemarketers, which have given negative image for it. Therefore companies need to

consider the use of telemarketing properly, because it still can offer benefits like

individual information.

Direct mail marketing and catalogue marketing (Kotler & Armstrong 2006) have both

developed dramatically alongside with the development of IT and E-commerce, but

companies still use the old fashioned mailing of offers and catalogues. Internet offers

time and cost savings in these forms of direct marketing, but companies still use printed

catalogues and offerings, because those can create their own fascinating atmosphere.

Direct-response television marketing takes two major forms (Kotler & Armstrong

2006); direct-response advertising and home shopping channels. In direct-response

59

advertising there is usually a television spot which is persuasive and offers a certain

product in certain price. Home shopping channels usually run 24 hours a day and

companies offer wide range of products in bargained prices. The use of different kiosks

in various places is popular form of direct marketing. Companies can sell their products

in high-schools or they can offer information in airports. This form of direct marketing

is also changing alongside with development of IT and today many of kiosks are

equipped with internet connection.

According to Kotler and Armstrong (2006: 553) the strong development of IT and E-

commerce with various appliances, have created huge possibilities for direct marketing.

Direct marketing through internet and other electronic appliances is cost-effective,

speedy and easily wide spread compared to traditional direct marketing. Despite the

benefits of IT in marketing, it also involves challenges. Issues related to privacy and

security is the concern of many consumers and companies.

Personal selling (Kotler & Armstrong 2006) presents one of the most individual forms

of direct marketing. In the initial stage salesperson should be able to prospect the

potential customers and make the needed preparation like finding the background

information. After the preparation salesperson should make impressive presentation and

most importantly close the case. As Kotler and Armstrong (2006) stated earlier, today

companies seek also long lasting relationships through sales force and not just a simple

sale.

Kotler and Armstrong (2006), Czinkota et al. (2005), Albaum and Duerr (2008), Jobber

(2004) and Rosenbloom (2004) have argued that marketing and blending of different

elements of marketing mix is not an easy task to complete. The task of designing and

managing all these elements is not any easier in rough economic conditions like in

recession. According to Kotler (2005) the management level of companies should

reconsider all the decisions related to marketing mix elements in a sense that it can offer

a chance for success in recession and after it. Time of recession is time for opportunities

and one opportunity is that companies can challenge their own decisions. Decisions in

marketing mix elements and marketing activities are vital since the improved or

increased marketing activities can improve company’s performance compared to

competitors. That is the reason why companies should at least reconsider their

marketing activities related decisions.

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3. MARKETING ACTIVITIES DURING RECESSION

In this chapter there is given a short introduction to recession and to normal reactions of

companies. Chapter includes relevant earlier studies concerning similar topic. In the end

of the chapter theoretical model from basic theory of marketing and earlier studies is

portrayed.

3.1. Introduction to marketing in recession

There are several opinions how marketing and marketing activities should be executed

during rough times. Some of the opinions say that marketing is unnecessary activity and

some of them say that it should be emphasized. Kotler (2005) says that when recession

strikes, then most of the companies hurry to cut the costs and the most obvious target is

marketing. In these big companies the executive don’t usually believe that marketing

can be a profitable action, they can stand that only during the time period when business

runs smoothly. These executives define the marketing budget from the expected revenue

and when these don’t fulfil, they see the reason to cut the costs from marketing budget

(Kotler 2005).

Kotler (2005) explains that one good example from this kind of decisions was when

CEO of big grocery shop decided to cut the marketing budget when the recession came.

The result of this decision was more than unsuccessful, when the grocery shop lost its

customers to their competitors. Conclusion from this was that company lost more, than

they saved in cutting the costs from marketing budget. Kotler (2005) argues that CEO’s

should consider different saving targets and even probably establish a group which is

seeking solutions for cutting the costs. Cutting of costs should happen in a way that

different functions are made more effective, because every company have some weak

and unprofitable points in their business. Kotler (2005) continues that there are two

important rules which should be remembered during rough times.

Companies hurry to make some savings when the challenging time begins, but they

should remember that they can not change the value created for customers. Customers

can make their buying decisions based on promised value proposition and if this is

suddenly changed they can easily switch to competitors services and products. Other

thing to be remembered is to respect your co-operators like suppliers, retailers etc. If

this group finds out that the promised value proposition is changed or it is getting worse

from their point of view, they can also move to competitor’s network. Kotler also

61

advises that companies should consider the cutting their prices. Customers are well

aware about prices during the recession, so companies have to be ready to make some

concessions. It is more important to keep the customers with the price of smaller sales,

than to loose the customers for competitors (Kotler 2005:69-70).

Finally Kotler (2005:70) says that wise companies and CEO’s use the recession as

opportunity to grow. These companies maintain the marketing budget as a same level as

before recession or even increase it. Recession can be time to snatch market share from

the competitors which are decreasing the marketing budget. Even more, in some

companies cost-saving is permanent way of thinking and acting, not only during rough

times. When the recession strikes, these companies don’t need to make major cost

cutting programs or huge declining operations of staff, they can just make small

adjustments for their strategy and marketing.

Column of Bhose (2009) starts with statement that Finnish SME’s considered marketing

more as investment rather than occasional cost. But this is actually not the way how

companies act in real situation. Over 80 per cent from the companies register marketing

as occasional cost and they do not divide those in sections. This result was revealed

from the research which was made by SEK Pro marketing company. Research was

made in end of the January at this year and there was over 300 companies taking part

for this research. The CEO of SEK Pro Olli Kivelä is not wondering that many

companies actually think marketing as a cost rather than investment, because they are

registering marketing as cost in accounting. Every fourth answerer of this research

thinks that all those assets which are used to building brand, sales promotion and to

other public relationships are costs. This number has grown little bit from 2005 when

the research was made first time. According to Kivelä this is the result of economical

situation now days, because usually in recession companies tend to cut the costs first

from marketing investments. (Bhose 2009: 24)

There is also other research which is proving that Finnish companies are cutting costs

from marketing activities (Mainosbarometri 2009). Marketing barometer announced in

January 2009, that 49 per cent from the companies are planning to cut the advertising at

year 2009. Those companies are planning to cut the costs from advertising 23 per cent

on average. There was 134 companies taking part for this research and these numbers

have not been so dark ever. The results from SEK Pro research are not so dim and half

of the companies are planning to keep marketing investments as the same and only 23

per cent were planning to cut the marketing investments. Still, these results are

62

contradictory with the results of same kind of research last year. In that research made

by Finnvera and Entrepreneurs of Finland in 2008 autumn, almost 60 per cent of

Finnish SME’s announced that increasing assets to sales and marketing is the most

important way to grow. (Bhose 2009: 24).

It is also interesting in SEK Pro’s research is that almost 70 per cent from companies in

this research announced, that they do not measure systematically the profitability of

investments, which are expended to marketing communications. Companies which do

not measure the profitability of marketing communications do not think marketing as

investment. Finally in this research there was question for the companies that in which

marketing communication area they need tools for measuring the results of marketing

communication most. 15 per cent said that they need them most in the advertising.

(Bhose 2009: 24)

In this column there were only Finnish companies so there is no need to make too wide

generalizations. Still, this problem is related to situation of economy and same kind of

reactions can be seen also in other countries.

In the figure below there is good description how the advertisers rapidly changed their

mind about marketing communication investments in the end of last year. Total number

of barometer is -41 and that number comes from the distinction between increase and

decrease. It is important to notice that same number was +33 only four months earlier.

According to Union of Advertising, this number hasn’t ever been so low during the 30

year history of advertising barometer. Decreasing is influencing almost every media

group and increasing is anticipated only in web- and mobile advertising, direct

advertising and advertising in stores. In addition, 86 percent from advertisers are

prepared to cut more from already made marketing communication budgets, if the

economical situation turns even worse. Union of Advertising observe that Finnish

advertisers seem to react to current situation in markets with cost saving and this opens

opportunities for advertisers to negotiate affordable media prices. (Mainosbarometri

2009).

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Figure 12. Development of marketing communication investments in 2009 compared to 2008. (adopted from Mainosbarometri)

These examples and researches prove that many companies consider time of recession

to cut the expenditures from marketing and marketing communication. This reaction

creates an opportunity for some companies to use recession as chance to make some

competitive advantage compared to competitors.

3.2. Marketing activities which emphasises during recession

There exist several studies which concern similar topic as in this thesis. Some of the

most similar and relevant studies have been collected in to one table to make the

consistency more clear. There are previous studies from Europe and from Northern

America. The geographic width of previous studies gives more aspect and credibility for

this study. The scope of studies also varies and there is no specific industry chosen in

these studies. Some of the previous studies have empirical data from two following

recessions which is always increasing the validity and reliability of the results. Some of

these studies are made from the 90’s recession and some of these are made from the

recession of beginning of 21’s century. These studies are listed in table 2 and described

more detailed later on.

64

Author(s) Method and Sample Nature of research Key argument/Result

Shama (1993) Mail questionnaire, 101 companies

Marketing strategies during recession:

comparison of small and large firms

Companies should develop indicators of economic

environment to formulate advantageous strategies for

recession. Laitinen (1994) Mail questionnaire,

750 companies Means of Finnish

companies to adapt in recession

Rationalization of marketing has vital role in surviving from recession. Quality,service and personal selling emphasises.

Dugal & Morbey (1995)

Database analysis, 294 companies

Corporate R&D spending during

recession

Companies which are investing to R&D during

recession continue to grow compared to competitors.

Holappa (1997) Mail questionnaire and personal interviews, 6

companies

Effect of export markets’ economic

fluctuations

Roles of product and pricing emphasises relatively more

during recession.

Pearce & Michael (1997)

Mail questionnaire, 114 companies

Marketing strategies that make firms’

recession resistant

Maintaining and increasing marketing activities, especially sales and advertisement, will help companies to go through

macroeconomic recession. DeDee & Vorhies

(1998) Interview survey, 110

companies Retrenchment

activities during economic downturn

Cost cutting especially in advertising and sales related

areas is often counterproductive.

Roberts (2003) Database analysis, 1000 companies

Strategic investments during recession

Marketing, customer perceived quality and new product

development are considered as good costs during recession.

Köksal & Özgül (2007)

Mail questionnaire, 172 companies

Relationship of marketing strategies and performance in

recession

During recession advertising is efficient way to keep contact to customers. All the changes in marketing should be done

consistently. Urbonavicius & Dikcius (2009)

Interview survey, 346 companies

Managerial perception on the role

of marketing activities during

recession.

The importance of pricing and communication methods is growing during recession.

Table 2. Empirical studies about marketing during recession.

Jyrki Holappa (1997) conducted a master’s thesis in University of Vaasa in year 1997

and his topic was the export marketing mix elements under target export markets’

economic fluctuations. In this study, theoretical part consisted from export marketing

mix elements and especially under of economic fluctuation. Empirical part consisted

from three hi-tech and three furniture companies which are originally Finnish and they

65

are exporting their products to Europe. Holappa (1997) found out that economic

fluctuation did not have direct influence on export marketing mix behaviour in these

companies. Economic fluctuation affected to general business environment and

consequently it affected indirectly to export marketing elements. Holappa (1997) states,

that role of export product and export pricing are relatively more emphasised during

recession. In terms of single variables of export marketing mix elements the product

core capabilities and costs where emphasised by these companies.

Erkki Laitinen (1994) studied the means of Finnish companies to adapt in recession.

The data for this study came from the recession of 90’s and the years of observation

were 1989-1993. Size of the empirical part was 750 different sized companies from

different industries. Aim of this study was to discover the means of adaptation and the

effectiveness of those means. Laitinen (1994) were discovering broad selection of

means of adaptation like means related to finance, capital and labour. According to

results of the study, effectiveness in many functions is the key to adapt to recession.

From the marketing point of view quality, service and personal selling were seen as

most vital functions during recession. In the answer other competitive means were

emphasised than price.

Pearce and Michael (1997) have conducted a research which was focusing on marketing

strategies which make entrepreneurial firms recession resistant. Companies in this study

are manufacturing firms of industrial goods with annual sales revenue between 10 and

100 million dollars in 1990. Authors managed to receive 114 acceptable questionnaires

back from the sample of 451. Goal for this study was to determine the components of

marketing which can enable these companies to withstand the influence of

macroeconomic downturn. Pearce and Michael (1997) conclude that companies’

preceding condition and strategy play vital role in surviving from recession.

Maintaining and increasing marketing activities in the core business such as expanding

sales force and advertising found to be profitable actions. In the end authors discover

that emphasis on cutbacks and retrenchments in recession leads to poorer performance.

The meaning of R&D is important for companies in long-run and Dugal & Morbey

(1995) studied the influence of R&D spending on companies’ performance during

recession. Authors list the purpose of this research in three parts; first they examine the

effect of R&D expenditures on sales during the recession of 1990-1991, secondly they

analyze the effect of firm –and industry level variables on inter-firm differences in R&D

expenditures during recession and last goal is to compare the results from the 1991

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recession to results of 1982 recession. The sample consisted from 172 companies in

1982 from many industries. The same companies were utilized in the same study in

1991, but due to mergers, acquisitions and business failures the number of companies

declined to 122. When authors compared the results from two consecutive recessions,

they found that the influence of increased R&D intensity is considerable. The results

showed also that companies operating in high-technology environment have higher

R&D intensity. Similar in both recessions is that company size, type of ownership or

market structure does not have influence on results. Finally Dugal & Morbey (1995)

argue that companies which R&D expenditures of products and services excess 5

percent of sales tend to grow during recession.

Keith Roberts (2003) have conducted a research which is based on information from

Profit Impact of Market Strategy database. This PIMS database contains experiences

and performance of increasing number of businesses. In year 2002 the database

encompassed around 4000 businesses from different industries in North America,

Europe and other continents too. In this study a market in recession is defined as

experiencing two years of decline in volume and this is followed by two years of

growth. Roberts (2003) found that 1000 businesses fulfilled these criteria. This study

focus on three different measures; average profitability during recession, change in

profitability during first two years of recovery and change in market share during first

two years of recovery. Roberts (2003) conclude that PIMS evidence indicates that

companies which invest aggressively in marketing will thrive during the market upturn.

Investments in customer quality, product development and generally increasing the

marketing budget were seen as the most efficient tools to increase ROCE and market

share during recovery and after it. Roberts (2003) still reminds that marketing spending

must be based on customers and industry and that finding is not appropriate for all

businesses in all circumstances.

Dikcius and Urbonavicius (2009) studied the perceived role of marketing activities in

the context of transitional economy. In this research the main focus is on opinions of

Lithuanian managers about the overall importance of marketing function in their

companies. Special attention is on managerial perceptions and opinions during the

economic uncertainty and recession. Dikcius’ and Urbonavicius’ (2009) research was

based on survey of 346 managers which are mainly managers of manufacturing and

trading companies which operate in Lithuania. Data was collected between 2007 and

2009 and it included four independent surveys, two related on pre-recession and two

related on recession period. From the marketing point of view authors observed that

67

importance of pricing and communication activities is growing during recession. In the

opinions of managers there is a positive relationship between marketing activities and

sales growth. In international context the meaning of results is minor since the study

was conducted only in Lithuania.

Study which is also based on other European country was conducted in Turkey by

Köksal and Özgül (2007). Topic for this research is the relationship between marketing

strategies and performance in an economic crisis. Main focus of this study is to reveal if

Turkish companies are affected by economic crises and find those marketing strategies

which might have positive effect on companies’ performance in turbulent conditions.

Total number of 172 companies from different industries with varying size was

included for this study. Köksal and Özgül (2007) observed that training, increased R&D

and communication with customers through advertising are in important role during

recession. Despite the positive effect of above mentioned marketing activities, all the

changes in marketing mix elements should be done consistently with other elements.

Authors remind also that lowering production capacity and reducing work-force have

only short-term effects on performance. In the end authors state that decision makers

and planners need to focus on promotional strategy if company desires a successful

performance during recession.

Avraham Shama (1993) executed a study which concerns the marketing strategies

during recession and the comparison was made between small and large firms. In this

study the main purpose is to determine management perception of and response to

economic downturn. In actual actions the focus is on impact of recession on marketing

decisions and adjustments in marketing strategy and action. Recession in this study is

national level recession. Shama’s (1993) sample consisted from 180 companies whose

size and sector vary. Randomly selected companies included small and growing

companies and large companies from industrial and service sector. Finally, Shama

(1993) received 101 acceptable answers from marketing managers. In the results there

were found differences how companies perceive the impacts of national level recession.

Large companies consider recession more as challenge, because those partly use

statistical indicators such as GNP to define the state of national economy. Small

companies consider recession partly as time of growth, but the nature of small

companies also affects to perceptions. Results also suggest that recession affects more

on large industrial and service sector companies pricing and promotion decisions than

small growing companies.

68

Shama (1993) concludes that large companies use more drastic adjustments to answer to

challenges of national recession. Large companies changed the promotional appeal and

spend relatively more on radio and prints ads to adjust their strategy on economic

environment. Main finding of the study is that the size and the sector of company have

significant influence on the perceived impact of recession. In the end Shama (1993)

argues that companies and especially small companies should develop indicators and

procedures to determine the changes in economic environment. This can add the

possibilities to adjust marketing strategies in before hand according to economic

downturn.

DeDee and Vorhies (1998) studied the retrenchment activities of small firms during

economic downturn. Authors of this study had two main intents in this study; measure

the retrenchment activities of small firms in light of economic downturn and measure

the impact of these retrenchment activities on key financial performance variables. The

target companies in this study are small manufacturing companies with annual revenues

between one million and 100 million US dollars. DeDee and Vorhies (1998) had no

specific industry in this study and all the industries of empirical part were closely

related like machinery, electronics and computer related industries. DeDee and Vorhies

(1998) sent 451 mail questionnaires to companies CEO’s and finally they received 110

complete and usable questionnaires. Authors analyzed the financial performance in two

different points; fourth quarter of 1989 and fourth quarter of 1992.

DeDee and Vorhies (1998) divided retrenchment activities in five general areas;

financial management, marketing, product development and R&D, production

management and organizational restructuring. The impact of retrenchment activities

were measured by return on common equity and cash flow to sales. Authors found that

companies emphasising new product development capabilities had positive effect on

ROCE. This finding is consistent with the findings of Roberts (2003) and Dugal &

Morbey (1995). Despite the emphasis on new product development, companies still can

not over-emphasise R&D which can have negative impact on ROCE. DeDee and

Vorhies (1998) found that cost-cutting activities like organizational restructuring and

focus on lower cost products improved the performance of small firms, but they also

found that cutting advertising and sales budget is not appropriate cost control activity.

According to authors companies which reduced sales staff and advertising expenditures

fared much worse than companies which maintained or increased efforts. This finding is

in same line with Roberts (2003), Köksal & Özgül (2007) and Pearce & Michael

(1997). In the end DeDee and Vorhies (1998) state that some specific retrenchment

69

activities proved to have positive effect on small manufacturing firm performance, but

cost cutting is not without risks. Cost cutting especially from advertising and sales

related areas seems to have often counterproductive impact on companies’ performance.

Authors also mention that these findings must be viewed as preliminary in the light of

sample employed in this study.

3.3. Theoretical model

Several studies prove that marketing has vital role also during economic downturn.

Studies by Shama (1993), Laitinen (1994), Dugal & Morbey (1995), Holappa (1997),

Pearce & Michael (1997), DeDee & Vorhies (1998), Roberts (2003), Köksal & Özgül

(2007) and Urbonavicius & Dikcius (2009) have studied the meaning and importance of

marketing during recession. In these studies authors found that the meaning of

marketing can not be emphasised too much. The findings and level of meaning varies in

these studies, but in general level can be stated that companies should consider their

marketing decisions during recession and after it to be able to tackle the challenges of

recession. There can not be done too broad generalizations about these findings what

comes to international companies operating in several market areas.

Many of above mentioned authors found deniable evidence that marketing activities can

improve the performance of companies during recession and after it. Some (Dedee &

Vorhies 1998) also found that carefully planned retrenchment activities can assist firms

to survive from economic turmoil without hurting the firms’ competitive capability

during the downturn and after it. Planning of marketing activities in long-run (Roberts

2003, Pearce & Michael 1997) and developing of indicators for economic climate

changes (Shama 1993) play also vital role, when companies face the challenges of

recession. Many of the findings in these studies indicate that companies should include

marketing and marketing activities into long-run strategy and planning rather than

considering marketing only as added cost.

In the basic theories of marketing (Kotler & Armstrong 2006, Czinkota et al. 2005,

Albaum & Duerr 2008, Jobber 2004 and Rosenbloom 2004) companies face many

factors daily which have influence for the company. These factors can be divided in

many ways but usually those are divided to internal and external factors. These factors

have influence for company itself but also for company’s marketing mix elements;

product, price, distribution and promotion. When companies have to work with these

internal and external factors, they might change the marketing mix elements

70

accordingly. When economic downturn strikes and entire economy shakes, companies

should especially consider their marketing mix element decisions. Economic downturn

can be considered as external factor which has influence on companies marketing mix

elements and marketing decisions.

According to Shama (1993), Laitinen (1994), Dugal & Morbey (1995), Holappa (1997),

Pearce & Michael (1997), DeDee & Vorhies (1998), Roberts (2003), Köksal & Özgül

(2007) and Urbonavicius & Dikcius (2009) there are some actions which companies

should consider when facing the challenges of recession. These actions can help

companies to survive better from the economic turmoil and even make the competitive

capability better compared to competitors. These possible adjustments and changes

which are based on the findings of previous studies create the base for theoretical

model. Possible changes in marketing mix elements are described in the figure 13.

Figure 13. Theoretical model.

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4. RESEARCH METHODOLOGY

This chapter consists from three parts. Purpose of this chapter is to introduce research

methodology and qualitative study methods which are used in this study. First there is

the chosen method described. Data of the study and collection of the data are presented

after the method. Analysis of the data is also described and in the end of the chapter

there is discussion about the validity and reliability of this study.

4.1. The chosen method

Qualitative approach was chosen, because it was considered to be applicable for this

study. Uusitalo (1991: 50) argues that the research method and the research data are

subordinates to the research problem. Uusitalo (1991) continues that the research

problem and research questions often define the used method and data. In other words,

to be able to have proper answer to the research problem of this study, a qualitative

method was considered to be most suitable for this study. Alasuutari (1995) also argues

that qualitative method reveals deeper reasons behind of the phenomenon, which

quantitative method does not. This fact is also speaking in the favor of choosing

qualitative method and approach for this study.

One of the main purposes of the qualitative data is to increase the knowledge about the

actions of the companies by separating the qualitative data (Koskinen et al. 2005: 16).

This statement increases the applicability of the qualitative method for this study since

in this study the data is collected by face-to-face interviews and via telephone

interviews. The aim is to reveal the actions of companies. Koskinen et al. (2005:24)

argues about the strengths of qualitative method and one is that qualitative research

offers one possibility to separate from theoretical and conceptual routines which are

steering the mainstream research. With qualitative research it is easier to collect the

needed or wanted data and for example the interview questions can be formed again

during the research, if needed. (Koskinen et al. 2005).

Earlier there have been lots of discussion about the significance and trustworthy of

qualitative methods in the field of different sciences. Today it is unnecessary to discuss

whether the qualitative methods are enough useful and adequate to produce information

from the topic of research. Qualitative methods have been approved also in the field of

business sciences. (Alasuutari 1995, Koskinen et al. 2005, Metsämuuronen 2005,

Silverman 2006, Yin 2003).

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In this study deductive reasoning is used, since it aims to lead from generalisation to

conclusion of individual case. Deductive approach is also suitable for this thesis because

the structure aims for building a theoretical model which will be tested empirically

(Maylor & Blackmon 2005). Grönfors (1985) and Uusitalo (1991) also states that

deductive reasoning begins with already existing theories and in the end there is

conclusion from these facts. In this study earlier researches made from the similar topic

presents the existing theories. From these facts the theoretical model is constructed and

the following empirical part will confirm or weaken the existing theories.

Yin (2003: 1) explains that using case studies for research purposes has never been the

easiest way to conduct study, since the case study has long been as weak method among

other social science methods. When researcher decides to conduct case study, researcher

must be ready for the critic about the method. Despite the critic and challenges which

case study retain, it was chosen as method for this study. Yin (2003) continues that as

research strategy, the case study is used in many situations to contribute our knowledge

about particular phenomenon. Yin (2003) states that case study have been common

research strategy in psychology, sociology, political science and also in business. It has

also been used in economics to study a given industry or economy in particular area. In

all of these situations the need for case studies stem from the aspiration to understand

some particular complex phenomena. (Yin 2003: 1-2). In addition Yin (2003: 2) says

that the case study method allows investigator to retain the meaningful characteristics of

real-life events such as international relations, maturation of industries or organizational

processes.

This study is researching particular complex phenomenon and the consequences of it.

According to Yin (2003: 13) case study is an empirical inquiry that investigates a

contemporary phenomenon within its real-life context. Yin (2003: 15) adds that case

study can be conducted and written with many different motives, including simple

presentation of individual cases or the aspiration to present broad generalizations based

on the case study findings. This study is not aiming to present broad generalizations

based on the case study findings, rather than explain the consequences of contemporary

real-life phenomenon. According to Yin’s (2003) definition for the case study, it was

rational choice for method in this study.

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4.2. Data collection

Data will be predominantly words in this thesis and findings will reveal the meaning of

those (Maylor & Blackmon 2005: 140). The empirical data will be collected from both

primary and secondary sources. The primary data consists of unstructured and semi-

structured interviews from the chosen SME’s. The interviewed persons are CEO’s,

Marketing Managers or other deciding level employees which are dealing with the

company’s marketing activities. The initial goal was to interview 10 different persons

from different companies. This amount of interviews would have ensured enough

variation in the answers. Unfortunately, the total number of interviews was finally six

which contains five representatives of different companies and one professional of

marketing interview. Interview of the professional of marketing was added to empirical

part to bring another point of view. The opinions and views of the professional will also

add the variation of all answers. Answers of case companies can also be compared to

answers of professional and this will add the credibility of the interviews. The goal in

interviews could not be achieved, because of great difficulties to reach the right persons

and turning away of interviewees from already dealt interviews. There will be separate

introduction of case companies and professional of marketing in the beginning of

chapter 5.

It is clear that greater amount of companies would have increased the reliability and

credibility of the research, but in this case the number of interviews is still on acceptable

level. In this research the variation in respondent’s background increases the credibility

of this study. This data collecting method is chosen because of its flexibility and

capability to allow new questions to be brought up during the interview as a result of

what the interviewee says. According to Syrjälä, Ahonen, Syrjäläinen and Saari (1994:

86) interviews are well suitable method to collect data. Syrjälä et al. (1994) continues

that when human is considered as sensing, thinking and language using target, it is not

enough that information and data is collected through questionnaire. This argument is

quite logic, but it explains why interviews, and particularly semi-structured and

unstructured interviews were chosen for this research.

In these face-to-face interviews the structure is not so highly structured. According to

Hirsjärvi, Liikanen, Remes and Sajavaara (1986: 52) the interviews are one of the most

typical methods for collecting data. Grönfors (1985: 105-106) argues that there are

several different forms of interviews such as non-directive interview, theme interview,

and unstructured interview. All these are considered as open interviews which

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differentiate from the structured survey which is conducted with questionnaire. The

success of structured survey depends about the interviewer’s preparation and

standardization before the interview. In opposite, unstructured open interview exploit

the missing of standardization, when the role of interviewer for the answers is

minimized. (Grönfors 1985). Silverman (2006:114) also states that qualitative

interviewing is particularly useful as a research method for accessing individuals

attitudes and values. Due to arguments of Syrjälä et al. (1994), Hirsjärvi et al. (1986),

Grönfors (1985) and Silverman (2006), open theme interviews were chosen for the data

collection method in this study.

The interviews are conducted on a one-on-one basis and estimated to last about 45-60

minutes. The purpose of interviews is to unravel the actions which company has done in

marketing during the recession. Telephone interviews were also used as one method to

execute the interviews, in sense that it lowers the barriers to participate for this study

and it also saves time and resources. The subject areas for interviews have been made

by assistance of previous studies and especially master’s thesis made by Jyrki Holappa

(1997). His master’s thesis guided the formulation of subject areas for interviews and

these subject areas also form the themes to analyze the interviews. These themes are

following:

• General view from the effects of recession.

• Effects of recession on product

• Effects of recession on price

• Effects of recession on distribution

• Effects of recession on promotion

• Effects of recession on marketing budget and future views

Syrjälä et al. (1994: 86) argues that interviews as data collection method are not the

easiest one and it requires good preparation mentally as well as informatively. Syrjälä et

al. (1994) continues that well constructed interview outline can assist substantially in

entire research. Themes which are constructed beforehand can assist interviews to go

trough different themes with open questions, but same time stick to the point. Proficient

interview outline and relevant themes can further entire study substantially and even

more those can open the analysis and interpretation of the research. (Syrjälä et al. 1994).

In a sense of this argument, it is well justified to use theme based interviews in this

study.

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The secondary data collection consists of selecting relevant articles and columns from

the topic and analyzing of financial statistics from the economic situation. Most of these

are available via internet. The purpose of the secondary data is to support the collection

of the primary data. This procedure helps the preparation for interviews and it also helps

that focus will stay on unravel the most important information.

4.3. Data analysis

In order to answer the research questions, the collected data needs to be thoroughly

analyzed. According to Koskinen et al. (2005: 229) the biggest mistake what researcher

can do, is to collect and describe a data without proper interpretation. Describing

research can produce new information, but if this information does not organize as one

part of the topics wholeness, its value can be minor. Interpretation is finally that part of

the study which makes the distinction for the everyday sense. (Koskinen et al. 2005). In

this study content analysis is used as method for textual investigation. According to

Silverman (2006: 159) content analysis is widely accepted method of text analysis. In

content analysis researcher establishes a set of categories and then count the number of

instances which fall into each category. Silverman (2006) continues that it is crucial in

content analysis, that the categories are precise enough that other researchers would

arrive in same result with same material. In this way, content analysis pays attention for

the reliability and validity of the study. Grönfors (1985: 161) also argues that content

analysis is well suitable method to analyze with qualitative methods collected data.

One important phase in analyzing is to familiarize properly with the collected data. That

is important because researcher must know well the data that he or she can pick up the

relevant information. (Koskinen et al. 2005: 231-232). In this study that means proper

lettering and reading the interviews. The secondary data needs to be also analyzed

properly to be able to find the most relevant information about the interviews. After

analyzing the primary and secondary data, there will be clear interpretation about the

results and answer for the main research problem.

Metsämuuronen (2005: 109) states that credibility of a research depends on validity and

reliability of the research. Research validity can be divided to external and internal

validity. External validity refers to generalization of the results to the other researches.

Internal validity is more related to research’s own validity that is the target of

measurement the actual target what it was meant to be. (Metsämuuronen 2005).

Marschan-Piekkari and Welch (2004: 465) argues that validity in international business

76

studies are in vital role since the validity is difficult to achieve in qualitative research. It

is difficult to achieve, because of differences in researcher and respondents cultural

assumptions. Other reason is that other scientific argumentation principles are socially

constructed and those differ across cultural and institutional contexts. (Marschan-

Piekkari & Welch 2004). This validity issue was not faced in this study since all the

respondents were Finnish.

According to Metsämuuronen (2005) and Syrjälä et al. (1994) researcher has to use the

right terms and theories to increase the validity. Researcher has to make sure that the

research measures what it is meant to measure. Careful planning and use of correct

terms and relevant theories improve internal validity of a research (Metsämuuronen

2005: 57). In this thesis the external validity will be measured by comparison to other

studies concerning the similar topic and the internal validity will be measured by the use

of terms and theories. Internal validity will increase since the used terms and theories

are well known and been used in previous studies. This study does not aim for broad

generalizations, but the results can be compared to results of other studies. According to

definitions of Metsämuuronen (2005), Syrjälä et al. (1994) and Marschan-Piekkari and

Welch (2004), validity is on adequate level in this study.

Reliability means repeatability of the study briefly described. According to Silverman

(2006: 282) reliability refers to the degree of consistency with which instances are

assigned to the same category by different observers. Silverman (2006) continues that

criteria of reliability can be satisfied in non-quantitative works by making the research

process transparent through describing research strategy and data analysis methods in a

sufficient way. It can be also satisfied by paying attention to theoretical transparency

which interpretation takes place and shows how this produces particular interpretations.

Silverman (2006). According to Silverman’s (2006) argument, reliability in this thesis

was added, since there is clear transparency trough whole thesis.

When the study is reliable, then almost same results can be achieved if the same

phenomenon and the consequences of that are studied by using the same research type

(Metsämuuronen 2005:65). Challenges for reliability in this study increase the fact that

there are not so many exactly same type studies done in Finland. The nature of the

recession also increases the challenges of reliability, since there is no one formula to

predict next recession or the amplitude of it. So far, almost every recession has been

different and the influence of recessions has varied which means that same results are

almost impossible to achieve in following recessions. These challenges are responded

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by the transparency (Silverman 2006: 282) of entire thesis. This research is partly based

on previous studies about recession which increases the reliability. Reliability of this

study increases also, because of the case companies when each of them represents

different industry. Reliability is also added by the interview of professional of

marketing which brings different aspects on the results of the interviews.

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5. RESULTS OF THE EMPIRICAL STUDY

In this chapter the results of empirical study are introduced and analyzed. Because the

case companies are anonymous, those are named by letters of the alphabets starting

from A and ending to E. Interview of professional of marketing is included to analysis

of the case companies. Results are discussed by subjects of the interviews. There is also

short introduction of every case company in the beginning of the chapter.

5.1. Introduction of the case companies

Company A

Case company A is medium sized company which is operating in wood industry. The

interviewed person in this company is Vice President of Marketing and Business

development. This company is operating in mainly Europe and biggest market areas are

Nordic countries, Baltic countries, Russia and in CEE area with Czech Republic,

Hungary, Poland and Germany. The business is divided in that way that Finland

represents around ten percent of entire business in total turnover. Main products of case

company A are different paper products and main customers are consumers.

Company B

Interviewed person in company B is the co-founder of the Finnish company and today

he is also the CEO. Company B is operating in E-commerce business and the main

products are personal hygiene products. Company is operating mainly in Finland and it

is exporting its products to Sweden, Russia and Estonia. 80 percent from the total

turnover comes from Finland and 20 percent comes from exporting. Main customer

group is consumers, but small amount of products are also sold to companies like

hotels.

Company C

Third case company is operating in furniture and carpenter industry. The interviewee of

this company is CEO and one of the main owners of the company. Company C is small

company and almost entire turnover compounds from the business in Finland, but

company is also selling products to Japan. Exporting to Japan represents only 3 percent

from the company’s turnover, but company is aiming to increase exporting. Main

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customers of company C are public organizations like parish unions, owners of value

properties and learning environments like universities. Products for consumers produce

around ten percent from annual turnover, but that number is also increasing. Main

products of the company are furniture.

Company D

In this company the interviewee is marketing coordinator and the industry is

manufacturing and selling of different floorings. Company D is operating in global

scale, but the business in Finland is in close relationship with Sweden and the annual

turnover of Finland is only some percents from the entire business. Main customers of

this company are construction companies, architectures and assembly companies.

Consumers are also customers for this company and products are sold to consumers

through retailers. Products of this company consist from different flooring systems and

requisite accessories.

Company E

Case company E’s representative is marketing manager and the company itself is

operating in sports equipment business. Main business area of this company is Central

Europe where Germany, Austria and Switzerland are in vital role. Finland is also one of

the main business areas, but products are sold globally in everywhere. Around 40

percent from the annual turnover comes from exporting. Main customers are big

retailers, sporting stores and special stores. Main end users of company E are

consumers. Products consist from different sporting and clothing equipments.

Professional of marketing was also interviewed for this thesis to give another aspect

from effects of recession. The views of interviewed professional also increase the

credibility of the study. This interviewed person is currently working as CEO of

association which further the interests of advertisers and Finnish companies which uses

advertising and marketing services. Person has been working on this position around 10

years. Person has also gained experience from marketing in previous working places

which have been in big consumer goods companies.

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5.2. Development in case companies during 2007-2010

In this part of the results there is description about case companies and their

development during the years 2007-2010. This time period was chosen since it includes

different time periods. Time before recession was year 2007 and year 2008 represents

the starting point of recession. In 2009 the impact of recession started to occur in

different industries. 2010 is already a year when some companies started to recover and

grown again. 2011 was left out since the results from this year are not yet complete.

Every company’s development is represented separately, but unfortunately, the wanted

information from company D was not available. From company C the wanted

information was neither available from year 2007 since company changed its

accounting period as equal with calendar year.

First there is the development of company A.

Company A 2007 2008 2009 2010

Turnover m. € 861 930 890 938 Result m. € 35 42 93 50 Personnel 3300 3220 3150 3200

Table 3. Development of company A.

From table 3 it can be easily concluded that from recessionary years, year 2009 was the

hardest one in turnover, but it was good if the result is relatively and directly compared

to other years. From these numbers can also be noticed that the development of

employees is downwards from year 2007 to 2009. It is still good to remember that the

number of employees might vary tremendously from many reasons in this size category

of companies. Representative of company said that in year 2009 company faced some

decrease in sales, but relatively compared to year 2008 the difference was not so

significant. Representative also said that the reason to decrease marketing activities was

not in recession. Table 3 also proves that what representatives of all companies said in

general, that in 2010 there was already some recovering noticed. Representative of

company A also said that their products are quite well recession proof and that can be

also noticed from this table. As conclusion from company A could be stated that

recession did not have major influence on their sales and turnover.

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Next the company B’s development is introduced.

Company B 2007 2008 2009 2010

Turnover m. € 14,7 16,8 18 20,5 Result m.€ 3,5 3,7 3,7 4,0 Personnel 35 40 42 45

Table 4. Development of company B.

Development of company B in table 4 shows that company has actually faced growth

from year 2007 to 2010. The development and growth of turnover has been quite

standardized and these results do not indicate that company would have faced any

problems in sales during these years. Number of employees has also been growing from

year 2007. Representative of company stated that they are aiming for external growth

and that fact requires increasing the number of employees. Growth of results has been

relatively compared almost equal during these years, but during year 2009 there was no

increase compared to year 2008. This might be because of recession since it started

during 2008, but the still company were able to increase its turnover. Table 4 can be

concluded as company’s representative put it; recession did not have any major

influence on their sales and actually recession was time of growth. These numbers

partly prove that increasing of marketing activities can improve the companies’

performance during recession.

Company C’s development is described in table 5.

Company C 2007 2008 2009 2010

Turnover m. € - 0,8 0,7 1,0 Result m. € - 0,064 0,025 -0,001 Personnel - 1 6 8

Table 5. Development of company C.

In the first place, table 5 indicates that development in company C’s turnover has been

minor. Representative of company said that the development of turnover has increased

and decreased slightly during last years. Now the CEO states that company is seeking

external growth from international markets and they want to increase the annual

turnover above one million euros, for good. Development in amount of employees also

indicates that company is seeking for external growth. Representative of company said

that recession does not have influence on their results or sales, but these figures would

indicate that it might have some influence. Development in company’s result indicates

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partly that recession had some influence already in 2008. It is still difficult to analyze

whether the recession is the reason for decreased result.

Development of company E is described in table 6.

Company E 2007 2008 2009 2010

Turnover m. € 30,9 28,9 26,3 27,7 Result m. € -1,5 -1,6 -0,2 0,8 Personnel 73 64 59 57

Table 6. Development of company E.

Company E’s turnover turned downwards already before the recession if the numbers of

2007 and 2008 are compared. Representative of company stated that other issues are

more important for them than recession. Weather have major role in the sales of

company E and that can be seen from the development of turnover in 2007 and 2008. In

2007 weather was not favourable for company E in Central Europe and that had

immediate influence. The development in the amount of employees indicates that

company did not have good result during years 2007-2010, but too broad

generalizations from this development can not be made. These figures partly prove that

some companies faced recover already in year 2010, due to increased turnover and

positive result in 2010. Representative of company stated that they increased slightly

marketing activities during years 2009-2010. This might had positive influence on

company’s result and turnover.

5.3. Results of the interviews

Results of the interviews are divided to different themes which are based on subject

areas of interviews. These themes were presented in chapter 4. First there is general

opinion about recession and after that every marketing mix element is covered

separately. Finally there is the change of marketing budget and future views discussed.

5.3.1. General view from the effects of recession

Generally recession had only little effect on most case companies and some of them

announced that during recession they noticed even some positive effects. There are

several reasons for this and there is some variety in the answers due to different nature

of the case companies. Biggest differences between these case companies relate to

nature of products, companies industry and target customers. Recession had only little

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influence for the company A, because different paper products are quite well recession-

proof. The CEO of company B said that recession had even positive influence on their

sales, since the products are relatively affordable and he thinks that those products are

sold more than luxury products during recession. Representatives of companies C and E

said also that during recession they noticed some increase of sales because their

products are high-quality products and the economic situation do not effect on their

customers. Only company D announced that recession had negative effect on their

company because their sales are in close relation with constructing and in the beginning

of downturn many construction projects were postponed or cancelled.

Already these answers show that recession can effect variously to different companies

and there is some disagreement in the reasons. When company B announces that reason

for increased sales arise from inexpensive products, C and E states that high-quality

products are sold even more during economic downturn. It is obvious that the industry

determines a lot between these companies, but there is clear difference in the opinion

about the effects.

Effects on marketing in general were also minor. Companies A and D are part of

consolidated corporation when the result of other countries had influence on entire

marketing budget. These companies faced some decrease in their marketing budget,

because corporation decided to cut the marketing budget. In company B recession did

not have major influence on marketing in general level because they have their own

channels like web pages and their own magazine. Company C announced that

marketing in general have been initial stage before this recession that recession did not

have influence and company E said that their marketing is mostly based on sponsorship.

None of the case companies announced that recession had major influence on their

marketing, but it still had some influence.

Almost every company said that there were no major differences between geographical

areas in the effects of recession. In company B representative said that actually in one of

their main business areas, Estonia, had over 30 percent increase in their sales during

year 2008. Other companies announced that they did not have notable differences in

sales decrease or increase between different geographical areas. All in all, case

companies faced only minor challenges and threats because of recession and they were

not forced to do any major changes in their marketing. General reaction for the

recession was that every marketing activity was scrutinized more carefully and risky

investments were avoided. Case companies wanted invest to marketing activities which

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they had been using before and they would know the effect of those specific activities.

Companies also announced that other costs than expenditures from marketing were

monitored carefully. It could be said that carefulness were increased among these

companies.

5.3.2. Effects of recession on product

Recession had only minor influence on product changes and adjustments. All the case

companies announced that new product development and modification of existing

products is must. Without continuous product development these companies would

disappear from the markets. Company A announced that recession had indirect effect on

their product decisions when big retailers wanted to grow the size of sales unit and then

the price would be more affordable. Company A also avoided and postponed new

product launches, because they did not want to take any risks. Company D had increase

in their product portfolio during 2008, but the increase happened because of acquisition.

Earlier studies showed that product related decisions can play vital role in recession.

Product development found to be good cost during recession and emphasis on that

matter also improved companies’ market share and sales after recession.

According to professional of marketing product development and distribution channels

are investments which are difficult to change or stop entirely. Professional of marketing

continues that recession rarely effect straight on these elements, because those are

considered as fixed cost. These elements are also considered as long-term investments,

but previous studies like Dugal & Morbey’s (1995) research found that investing more

on R&D can have positive effect on sales even during recession. Many of the case

companies are still executing R&D, but none of them announced that they had increased

R&D investments. Case companies neither did adjusted the old and already existing

products as reaction for recession. As conclusion from product related decisions could

be said that case companies did not consider the product decisions as a solution for the

challenges of recession. Case companies wanted to maintain their products mainly same

as before recession.

5.3.3. Effects of recession on price

Every case company of this thesis announced that recession did not have direct

influence on their pricing decisions. Prices were changed in some companies, but

recession was not the reason for that. Representative of company A said that recession

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had indirect influence on their pricing due to pressures from big retailers to lower the

prices. Representative continues that pricing can not be changed too much according to

recession since other elements which have influence on pricing like product

development are long-term investments. In other words, differentiation in price is

difficult during recession since recession is still short-term influencer. Company D’s

representative said that they increased the prices in year 2009, but the reason was not

the recession. They had to raise the prices since there was increase in the prices of raw

materials. Company B also raised the prices in 2009 by three percent on average, but

their reason was the currency changes of euro since they have sales in Sweden and some

other European countries which have different currency than euro. Companies C and E

said that recession did not have any influence on their pricing decisions.

According to professional of marketing companies do not easily change their pricing

during recession. Companies which changed and lowered their prices are the companies

which offer marketing and advertising services for other companies. These companies

are forced to cut the prices that they can reach full capacity. This pricing is indirect

consequence from recession when companies tend to cut expenses from advertising and

marketing communication. On the other hand this kind of pricing in media offers a

chance for companies to get coverage with lower expenses. None of the case companies

announced that they would have used this opportunity. Representative of company A

was well aware about the lower prices in advertising but they still did not use the

chance. This kind of decisions can be interpreted as general caution which all of the

case companies had in decisions when recession began in 2008.

5.3.4. Effects of recession on distribution

According to previous studies recession has only little effect on distribution related

decisions. As mentioned earlier, in general companies consider distribution channels as

long-term investments and those are difficult to change in short-term. For these case

companies’ recession had also only little effect. Company A announced that they

wanted to make some cuts for expenses but these cuts were not directed to distribution

channels. Company A made some cuts on administrative costs with some limitations for

travelling and with recruiting prohibition. Reason for this is that the products still needs

to be delivered for customers and that can not be diminished or otherwise customers

will suffer from the expense cuttings. Representative of company B said that there is

always a need to decrease expenses, but they did neither direct these on distribution

channels. Actually company B found that recession had positive effect on their

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distribution decisions when the companies in logistics business were even eager to

negotiate about contracts and prices of logistics services. Company B did not have to

make any major changes in distribution decisions because of recession.

Company C announced that they actually increased their sales channels for consumers.

They used more big retailers in furniture business to reach even more consumers, but

this decision was not a consequence from recession. Recession did not have negative

impact on distribution decisions in company C and one reason for that is that they have

done long co-operation with same partners. Company D made one big decision in 2008

when they shutdown one factory in Sweden and they moved the production to already

existing factory in Netherlands. According to representative this decisions was not

influenced by recession and it was made in order to make some general cost cutting and

to concentrate the production to most suitable locations. Representative of company E

said that they are in lucky position that they were not forced to make any changes for

distribution.

From these answers can be concluded same kind of conclusion like from the previous

studies; recession has only little effect on distribution decisions. Most of the case

companies still admit that most of the time cost cuts are on table. These cost cuts are

just not usually directed to distribution channels and logistics, because companies are

afraid that customer might suffer from these cuttings. Only company B announced that

recession had positive effect on their distribution and logistics. On the other hand, none

of the companies announced that they tried to differentiate their distribution to achieve

competitive advantage. Companies’ careful attitude towards any investment during

recession might have strong influence for this matter.

5.3.5. Effects of recession on promotion

Promotion and marketing communication are usually the first elements which can feel

the cuttings of costs during economic downturn. Professional of marketing agrees this

general view and adds that this also started during 2008. In the beginning of downturn

companies started to cut expenses from advertising and marketing communication, but

companies also started to seek other, less expensive, methods for communication.

According to professional of marketing this recession speeded up that companies started

to use more electric channels and social media in their communication. Even though the

recession has speeded up the change of advertising and marketing communication, the

change is happening all the time from traditional channels towards more electric

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channels and social media. Previous studies have proved that companies should

consider promotion thoroughly during recession. Some of the previous (Roberts 2003,

Köksal & Özgül 2007) studies have found that emphasising of advertising and

marketing communication can have positive effect on companies’ performance during

recession and after it.

Case companies said that they have not made any major changes to promotion related

decisions. Company A again faced the pressure of big retailers in promotional aspect

when they wanted more promotional activities towards consumers. Company A also

assumes that promotional activities like sales promotion, gifts, free samples and

competitions will bring profits faster than traditional media advertising which will

strengthen the brand. This is still quite controversial when company same time says that

they were also very careful in investing sales promotion and this was straight

consequence from recession. There was no major cuts in promotion activities, but every

spend euro on these activities were scrutinized more carefully in company A. Training

of employees were cut from year 2008, because the benefits of training are so hard to

measure according to company A.

Company B announced that they made some changes to their promotion during years

2008-2010, but the changes were not made because of recession. They have their own

web pages which are the main form of their advertising and the release of new web

pages happened same time when economic downturn started. Another way of marketing

for company B is their own magazine and they did not made any changes for that. Sales

promotion activities like free samples, gifts, competitions and product demonstrations

are normal activities for them and they did not made any changes for those activities.

Representative of company B said that they are changing and modifying their

promotional activities all the time somehow, but recession did not have any influence

on that. Actually they saw growth of sales in years 2008-2010 and representative

continues that recession have had only positive effect on their sales.

Companies C, D and E said that pure advertising is not in big role in their marketing

and they also said that there were no major changes made in advertising and marketing

communication. Representative of company C said that advertising is not their main

channel to reach their customers and they actually increased the amount of press

releases. Company C had done their marketing through personal connections before, but

now it is changing more due to new CEO. Recession did not have influence on the

matter that company is increasing its marketing activities. In company D recession had

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influence that they started to scrutinize more carefully the costs of promotion material

and advertising. One main channel to promote their products for company D is the

model folders which also construct the main cost of their promotion activities. Company

D have counted more carefully the amount of these model folders and in general they

have considered of reducing the promotion costs by transforming those to electric form.

Another change in their promotion is that they do not go in fair trades and that decision

is also made in sense to achieve some savings in promotion costs. These changes were

made because of recession.

Company E announces that they do not have to promote their products through

advertising, because their products are well known Finland. Company E’s products are

also so well promoted through retailers that they do not need their own separate

advertising and that is the reason that recession had only little effect on their advertising

decisions. Controversial still is that company E announces that they wanted to add their

presence in different fair trades and they consider it as very important, as same time

company D announced that they wanted to cut expenses from that activity. One reason

for that difference might be that there is different amount of fair trades between

different industries. Companies’ promotion strategy naturally has strong impact on this

matter. Using of different promotional activities like gifts, competitions and free

samples happens through retailers and there have not been any changes because of

recession. Sponsorship is one of the main activities of company E and that has been also

scrutinized more carefully and the targets of sponsorship have been selected accurately

because of recession. Company E made some adjustments for their promotion strategy

because of recession, but there were not any major changes.

The view of professional of marketing could be seen in many of these companies.

Marketing communication is usually the first place where companies cut expenses,

because that is the easiest part to make some cuttings. Used assets are usually

scrutinized more and more carefully and this was also seen from the case companies

down the line. In promotion activities carefulness and small cuts in the expenses prove

that recession had some influence on case companies’ promotion decisions. Positive

effects from added promotion activities during recession were found from previous

studies (Roberts 2003, Köksal & Özgül 2007) and that’s why companies should

consider emphasising promotional activities. On the other hand, professional of

marketing said that often the economic situation of company does not enable to increase

the promotion budget during recession.

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5.3.6. Effects of recession on marketing budget and future views

Case companies were asked that did the total marketing budget face some changes

because of recession. Two out of five said that they cut the marketing budget and other

three announced that they increased the marketing budget in years 2008-2010.

Companies A and D announced that they decreased the marketing budget and

companies B, C and E said that they have increased the marketing budget.

Representative of company A said that 2008 and 2009 company made smaller cuttings

than in year 2010. According to representative reason for the bigger retrenchment in

2010 was not because of recession. Reason for that was in company’s long-term

strategy and recession had only small influence on that matter. These retrenchment

activities were not made in a sense to achieve some particular effect. Company’s

representative continues that cost efficiency and accuracy were emphasised in

company’s activities during recession. In general, company did not try to achieve any

specific effects with moderately changed marketing activities. Aim was only to achieve

some cost savings in general. Company A’s result and profits were neither changed

dramatically during years 2008-2010 compared to time before recession.

In company D representative mentioned that they cut the expenses from marketing

budget in years 2008-2010. According to representative these retrenchment activities

were not targeted to one specific area, rather than cutting the entire budget. The final

decision was left to marketing coordinator of Finland which could choose the specific

targets for retrenchment. Company D believes that these retrenchment activities do not

have any major influence on company or its profits. Same time they think that when

marketing budget is decreased, many mumbo-jumbo and nonsense activities are cut out.

These activities are usually done only because company have loose assets during

economic boom. Finally company D’s representative says that it is much more

important that sales representatives have appropriate tools which they can use than use

assets on other marketing activities.

Company B’s representative said that they actually increased the marketing budget

during years 2008-2010 compared to years before recession started. The main reason for

the increase of marketing budget was in long term strategy which aims to external

growth. Recession was not the major reason why company increased the marketing

budget, but actually company B have faced growth in turnover and also in profits during

these recessionary years. Even more detailed, in year 2009 company achieved its best

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result ever. In other words, recession has been time of growth for company B even

though they have not made small changes to their marketing activities because of

recession.

Company C and E also announced that they have slightly increased their marketing

budget during years 2008-2010. In company C the main reason for the increase is that

they have new strategies for the future. Their strategy is also to achieve some external

growth since so far the company’s turnover and main customers have been somewhat

same last years. They have increased the marketing budget and they have started to seek

new customers from new customer segments and that is long-term strategy. Recession

did not have influence on those long term decisions. Representative continues that these

increases in marketing budget and activities do not directly effect on their old

customers, but they hope that they will reach new potential customers with the

increased marketing activities like press releases and presence in social media.

Company E said that their marketing budget have increased because it is in immediate

relationship with turnover. Their turnover has grown slightly and that’s why they have

also increased marketing budget. According to representative of company E recession

did not have direct influence on their marketing budget. Representative continues that

the measurability of benefits from specific marketing activities like advertising is very

difficult. Company E thinks that it is natural that they invest more on marketing

activities if company’s turnover is growing like during these recessionary years.

Many of case companies state that their marketing is changing after and during this

recession, but recession is not the reason for the changes. Company A’s representative

say that they do not actually know that which direction marketing in general is heading

for. In their thoughts the role of consumers is growing and companies can not anymore

rely only on pull strategy and waiting for that consumer will react for that. Today

consumers can get information from companies and products through electronic

channels in any time and place they want. Social media and electronic channels have

enabled the increase in customer’s role. According to company A, we are in breaking

point and no one knows how the role of marketing will change in few years. This is the

reason why they do not know by themselves that how their own marketing will change.

In general the representative believes that recession is a threat and opportunity for

companies. Opportunity it is because there is clear evidence from the recession of 90’s

that companies which can invest more on marketing during recession will increase their

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market share. Threat it is because in general consumers come more cautious with

spending and that can have effect on companies. In company A opinion is that

companies should focus on the core business and cut all unnecessary activities away

during recession. Recession is also considered as opportunity because then companies

need to challenge the efficiency of their activities whether it is marketing or not.

In companies B,C and E marketing in general will also change and the main reason is

not recession. In company B the reason for the change of marketing activities is the

need to develop their own marketing channels. In company B, own web pages and their

own magazine are the main channels and company wants to develop these channels to

more interactive. Company wants to be in close interaction with customers and collect

more information from customers about their products. In other words, recession is not

the reason for this change of marketing activities. In company B recession is seen more

as opportunity for companies since companies need to go trough their own activities and

consider the effectiveness of those. For company B recession has always been fortunate

period because their products are relatively affordable and consumers can afford to buy

their products. CEO of company B finally states the same as in company A, that general

effectiveness of every activity should be emphasised during recession.

In company C the reason to change marketing activities is in general growth objectives.

Company is aiming external growth in international markets and that is the reason why

they are increasing marketing activities in general. Marketing activities are not changing

so radically, but the frequency of used marketing activities is growing. Company is also

ready to modify their products in a sense that international penetration is easier. For

company C recession had only minor influence and it did not have influence on their

future plans either.

In company C recession is considered both as threat and opportunity and reasons are

same as in company A and B. Threat it is because indirectly recession can effect on

companies general income level and opportunity it is because recession offers a

possibility to grow. According to company C’s representative they have good chances

to grow since there is always a market for high price and high quality products, whether

it is economic downturn or not. This answer is quite conflicting with the answers of

company B and E which emphasises the success of relatively affordable products during

recession. In company C general opinion is that during recession it is important to keep

in customers mind and emphasise the existence of own products and services.

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Company E will also change their marketing activities after this year and the main

reason for that is the development of their general strategy. Marketing activities are

changed also because they are changing the cooperation companies. Recession did not

have any major influence on these decisions. Recession is seen more as opportunity in

company E because it gives good reason to pick up the slack and allocate resources

better. These actions will cut the unnecessary activities and enhance the performance of

the company. According to representative of company E it is important to encourage

consumers for spending to avoid the boost of economic downturn. In the end

representative states that their marketing activities in Finland are concentrating more to

strength the brand and activities in international markets are focusing to achieve

penetration in new market areas.

In company D situation is expectant and the reason is in current situation of entire

world’s economy. Company’s representative says that they do not know exactly how

economic situation will develop in the near future. If the economic situation will

develop negatively it can also occur in company’s marketing budget in the future, but in

next year there will not be any major changes. Company D considers recession only as

threat as they are operating in construction industry and there economic downturn can

only mean threat. According to representative recession usually occur first in the

construction business and the construction in general decreases. Company D emphasises

the meaning of sales persons during recession and especially the tools of sales persons.

They think that it is vital for the company that sales representatives have proper and

supporting tools in their job. Marketing in their consideration means the support for

sales persons and that is quite conflicting with the opinion that some marketing

activities are nonsense. Conflicting is also that company D announces that they do not

want to cut expenses from marketing activities which support sales persons.

According to professional of marketing the general line of marketing has changed all

the time, not because of recession. Biggest influencer for the change is the development

of communication channels. Today consumers and customers can use electronic

channels to find information, products and services. They are not anymore dependent

about time and place rather than having more control. This view is in same line with

company A’s representative and they also share the same opinion that social media has

also increased the role of consumers. In general development of marketing this might

mean opportunities for varying range of companies, not just for those who can invest

lots of assets on pull strategy and advertising. Professional of marketing emphasises that

recession had only minor or no role at all for this development.

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Professional of marketing says that recession is time of opportunities for most of the

companies. During the recession marketing communication is the way how companies

can differentiate themselves from competitors and recession is time for make the

difference. Professional continues that there is many good examples in Finland from the

recession of 90’s when some companies increased their marketing activities and they

faced increase of sales or market share. Kotler and Caslione (2009) also argues that time

of recession is time opportunities. There are also studies from other countries which

have same kind of result that companies emphasising marketing will keep or increase

their market share. Professional of marketing continues more that important is to

observe competitors and their actions and then consider changes in own marketing

activities. In the end, the professional of marketing reminds that even though history has

clear evidence that increased marketing activities can improve the performance of

companies in most of the cases companies do not have extra resources to do that.

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6. SUMMARY AND CONCLUSION

This chapter makes the final summary about the study and concludes entire thesis. From

the results of empirical part there is given the practical implications for managerial level

considerations. In the end of the chapter there is suggestions for future research

possibilities concerning same topic.

6.1. Summary of study

This thesis was researching that how recession affects on companies from the marketing

point of view. Recession as phenomenon is multi dimensional and recently it has been

topical theme in news papers and media around the world. Origin for this thesis came

from the column of Cilla Bhose (2009) in Kauppalehti which was discussing about the

marketing investments of Finnish SME’s. In the column there were opinions of CEO’s

from big marketing and advertising agencies which said that most of the Finnish

companies do not consider marketing as long-term investment rather than cost. When

companies consider marketing as occasional cots, it is clear that they can easily cut the

expenses from marketing activities when the economic period is not most favourable.

This column was made on the basis what happened already in 2008 when world wide

economy started to turn downward and this raised the interest of researcher. Topic came

even more interesting, because there had been made some researches earlier and those

had found that increased marketing activities can help to survive better from recession.

From this point of view the research gap for this research was clear.

The purpose of this research was to study if companies are affected from the recession

and if their marketing related decisions were changed due to recession. Aim of this

thesis was to study through case companies if companies change their marketing

activities in a particular way to achieve some specific effect. Based on this purpose the

research problem was conducted and it was that

Will companies change or adjust their marketing activities due to recession to survive

better from it?

In every thesis the research problem is linked with the objectives of the study. In this

thesis the objectives were divided to theoretical and empirical objectives. Theoretical

objectives were:

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• To analyse and compare relevant and similar studies concerning marketing

activities during recession

• To construct from previous studies and from marketing literature theoretical

model of possible adjustments in marketing activities during recession

Empirical objectives are:

• To interview decision makers of case companies about the effects of recession

on companies marketing activities during 2008-2010

• To analyse the results of the empirical study and compare them to theoretical

model

First theoretical objective was approached by gathering similar studies from electronic

sources of University of Vaasa and Helsinki School of Economics. Libraries were also

used from these universities to find similar studies from traditional sources. Many of

similar studies were drop out because of the age of research. In the analysing of studies

from similar topic, there were found not so many studies which would have focused

purely on marketing mix elements during recession. Finally nine studies concerning

similar topic were chosen to closer scrutiny. All these nine studies were finally chosen

for constructing the theoretical model. These studies represent four different countries

and two different continents. The level of internationalization in previous studies was

good, but if there would have been found relevant study from Asian country, it would

have increased the level of internationalization even more. After all, analysing and

choosing of relevant previous studies were conducted properly.

For the second theoretical objective the basic literature of marketing management

offered the basis. Marketing itself as a concept and theory is too wide to handle in

master’s thesis and that is the reason why the literature was limited to marketing mix.

Entire Marketing mix theory is also wide, but in this thesis the analysis of marketing

mix was concentrating to most relevant parts of mix elements which emphasises during

recession. One previous study which was conducted by Jyrki Holappa (1997) took the

marketing mix elements as a base for theoretical part and this also assisted in the

constructing and choosing the basic literature in this thesis. Marketing mix theory is one

of the most notorious theories in the field of marketing which means that it is well

known in the academic as well as in business fields. Phillip Kotler’s and Gary

Armstrong’s Principles of Marketing (2006) were used mostly as a basic theory for this

thesis.

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Constructing the theoretical model from previous studies and basic literature of

marketing management was conducted well. One of the biggest challenges in

constructing of general theoretical model was the nature of recession. Recession is

always a unique when it occurs and that is increasing the challenge to create general

theoretical model for the possible adjustments in marketing activities. Previous studies

and the relevance of those offered a great assist in constructing phase and in the end the

created theoretical model is rational and proper. Two theoretical objectives were

achieved in this thesis.

Empirical objectives of this study were also divided for two separate objectives and the

first one was approached first by the selection of possible case companies. The selection

procedure was conducted with assistance of news papers, company reports, economic

journals and magazines which offered information about companies. These sources

offered information that how companies are reacting to recession in general and that

information helped in mapping of potential case companies. Potential companies for

interviews were contacted by phone to get personal contact with decision maker. All the

answers and persons were guaranteed to keep anonymous in this study and that fact

helped out to achieve adequate amount of interviews.

Finally five companies with different size and from different industries were included

for the empirical part of study. In addition there was also an interview of professional of

marketing included for the empirical study to give more credibility and variety for the

answers and for entire study. The selection of professional of marketing was done by

scrutinizing different organizations, associations and academies and the staff of those

institutes. Finally proper person for this role was found and person finally agreed to

participate for this study from neutral point of view.

After the selection procedure the selected persons were interviewed by face-to-face and

some of them were interviewed via telephone due to limited time and resources.

Interviews were executed between May and August in 2011. Subject areas for personal

interviews were partly based on the previous study of Jyrki Holappa (1997) and his

master’s thesis assisted in the construction process of interview questions. Interviews

were semi-structured which does not restrict the answers of interviewed persons and it

also guarantees the minimal role of interviewer in the answers. All the interviews were

made in decent time frame to guarantee the relevance of answers. Selection and

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execution of the interviews were done adequately and that fact enabled the proper

analysis of the interviews.

6.1.1. Summary of results

In general all the case companies announced in interviews only minor or no changes at

all in their marketing activities due to recession. There were neither any major

adjustments made in marketing activities to achieve some specific effect. On general

level case companies came more cautious with decisions and investment. Cautious

attitude was not directed only to marketing activities rather than to entire business. Big

decisions and investments were postponed and every function was scrutinized more

carefully. In the interviews representatives revealed that some changes were made in

marketing activities during recession, but in most of the cases recession was not reason

for changes. Some of the companies faced indirect influence from other parties of their

network and that’s why were forced to do some changes.

Representatives of case companies also announced that they do not consider recession

as big threat and that kind of influencer that they would have to change their marketing

activities. Other way round, representatives do not consider recession as big opportunity

which is time for big investments. They consider recession more as opportunity to cut

expenses from unnecessary activities, but not as time period to increase marketing

activities and marketing budget. Many of interviewed persons admit and are aware

about the possibilities of recession which history has shown. Still, these companies do

not increase marketing activities or marketing budget during recession and reason for

that is in inadequate resources or lack courage. Professional of marketing also argued

that in most of the cases companies are aware about the possibilities of increased

marketing activities during recession, but they do not have enough resources or courage

to increase it.

Case company A’s marketing activities remained almost on same level as before

economic downturn, but it was slightly decreased. In product related decisions company

made some adjustments because of indirect influence from retailers which wanted to

have bigger sales packages, so company adjusted the size of sales units. Product

development was done normally as before recession and other changes were not made

on product related decisions. Pricing was also changed slightly because of pressures

from retailers to make the sales units bigger when the price would also appear cheaper.

Recession is not the reason to make changes for pricing in long-run, but in this case

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recession had indirect influence on pricing. Distribution was not changed in company

A, because they consider it as long-term investment and anyway products need to be

delivered for customers. Promotion related decisions were influenced directly because

of recession and company A considered more carefully the used sales promotion tools.

Company tried to cut expenses from samples, competitions, gifts and product

promotions. Clear decrease was also in sales persons and employees training, because

benefits from this action are difficult to measure and it is more like long-term

investment.

All in all, company A slightly decreased its marketing activities and marketing budget

during years 2008-2010. Company’s representative still reminds that recession was not

major reason for changes rather than having indirect influence from other participants of

their network. Company A’s products are also quite well recession-proof, which means

that business cycles do not affect so much on the consumption of their products.

Company A announced that they tried to cut expenses from administrative costs like

travelling and recruiting. In general, the biggest influence of recession was that

company scrutinized more carefully every action, whether it was marketing or not.

There was some inconsistency in the company’s opinions when they announced that

long-term investments can not be changed during recession to have short-term effects.

Training of employees is commonly considered as long-term investment, but company

A wanted to cut expenses from this activity. This case proves that cutting the expenses

might have bigger role in economic downturn in general and the targets of cuttings can

vary.

Case company B increased its marketing activities during recession, but the CEO of the

company announced that recession was not major reason for the changes. Company

faced even increase of sales and growth of turnover during years of economic downturn.

Company’s CEO said that economic downturns usually have been beneficial for them

since they have not faced any major decrease of sales or turnover. According to CEO

reason for this lies behind of their products since those are moderately affordable and

that’s why consumers will buy those even more during rough economic periods. CEO

continues that big investment decisions are more easily postponed when times are

unstable, but their products are still acquired despite the stage of economy. This view is

consistent with the professional of marketing who also states that state of economy

rarely have big influence on buying decisions such as cosmetics. Actually economic

downturn can have positive effect on the sales of affordable products, which are bought

as refreshing and cheerful goods, such as personal cosmetics and magazines.

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Company B has their own channels which they are mostly using to promote and

advertise their products. These channels are their own web pages and their own

magazine, which means that they do not use so much external marketing activities like

advertising through advertising agency. Company B has still developed their own

marketing activities and they have increased marketing budget. In product development

company was developing new products and product categories, but timing of these

happened to be same time with recession. This company changed their pricing by small

increase in general prices, but this was done because of currency changes in Europe.

In distribution decisions company B did not make any changes, but they said that it was

easier to negotiate about contracts and prices, because of recession. Promotion was also

increased as they were developing new web pages during recession and that also

happened to be same time with rough economic period. Other sales promotion tools as

free samples, gifts, competitions and product promotions were used as normal and the

amount of those were slightly increased. Changes made were not so big, but company B

announced that they increased their marketing budget during years 2008-2010. CEO of

the company still reminds that the increase in marketing activities was not made

because of recession. Increase in marketing activities was made, because of general

strategy which aims to external growth.

In case company C marketing activities were also slightly increased. As well as in

company B, reason was not the recession. Company C’s representative said that main

reason for increased marketing activities was the development in company’s staff.

Before new CEO, company C had done the marketing mostly trough personal

relationships. New CEO has developed general strategy for the company and that aims

for external growth. For many years company have been on same, relatively stable,

level in turnover. New CEO has created strategy where company grows for another

level, for good and that has been the main reason for increase in marketing activities.

Product development was done all the time in company C during the recession, because

without new product development they would fade away from the markets. In pricing

there were no changes made, but in distribution related decisions company added sales

channels through big furniture retailer. Company C increased their promotion activities

by adding presence in social media and they increased amount of international press

releases. The latter one have already increased the knowledge about their name in

international markets. CEO of the company said that recession and usually economic

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cycles have only small effect on their activities. CEO also believes that the increased

marketing activities have not influenced on their old customers, since they have known

the company for long time. CEO continues that hopefully these added marketing

activities will bring new customers and it will assist in international markets.

Opinions of company B and E are slightly inconsistent with the opinion with company

C’s representative. Company C’s representative thinks that high-end and high quality

products have always markets despite the state of economy. Company B’s and E’s

representatives think that affordable products have always good markets, even though

there would be economic decline. They justify the opinion in a same way as do

professional of marketing; big investments are postponed more easily during recession

than relatively affordable products. These differences are explained partly by totally

different industries where companies are operating. In the end, company C’s

representative also state that recession was not reason for changes made in marketing

activities.

Case company D is totally different from other case companies since they consider

recession only as threat. Threat it is, because company D is operating in business area

which is highly linked to construction business. Company D’s representative said that

recession had negative influence on their company since the level of sales turned down

alongside level of general construction. When sales turned down, company had to also

cut expenses from marketing activities and costs. These cuttings were not so big after all

and company’s general opinion is that decrease of marketing activities have not

influenced on sales.

Product development was done as before recession and year 2008 also in company D.

The product category was increased through international acquisition, but this was not

made because of recession. Pricing was not changed during recession since that element

is mostly changed because of growth in price of raw materials. Company D made one

big change in distribution by shutting down one factory in Sweden and moving the

production to Netherlands. Main reason for this was the concentration of production,

not in recession.

Promotion activities were cut during recession by not participating to fair trades and the

amount of used sales promotion tools like samples, gifts and product promotions were

also decreased. According to representative of company D the total marketing budget

were decreased during years 2008-2010. Opinion of company D is that by cutting the

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marketing budget lots of nonsense and mumbo-jumbo is cut off. These unnecessary

nonsense marketing activities are done in company D only when they have extra assets.

Company E increased their marketing budget slightly during recession, because their

turnover increased also and that enabled to grow the marketing budget. Company E

have general strategy where company is achieving growth in international markets and

this was the main driver for increase of marketing budget. Representative of company E

said that recession does not directly effect to their sales and sometimes it can even have

positive effect. Recession can effect positively to company’s sales because expensive

investments like cars and houses are postponed, but their relatively affordable products

are still bought. According to representative, consumers can invest even more on

company E’s well-being products during rough economic period. Representative

continues that weather has the biggest influence on their sales and recession does not

have that big influence.

Company E kept the product development going on despite the economic downturn and

they did not made any adjustments on their existing products. This was same as all of

the other case companies that product development needs to go on despite the state of

economy or otherwise company will die from inside. Representative of company E

announced that they were not forced to do any changes for pricing and distribution.

Company E increased promotion activities by increasing the presence in trade fairs and

especially in those one which have professionals. Sales promotion tools such as free

samples, gifts and competitions were slightly increased, but the use of these happens

through retailers. Sponsorship is also in important role for company E and they wanted

to define more the existing targets of sponsorship and possible coming targets for

sponsorship. Finally, the representative of company E state that they increased the total

amount of marketing activities, but the reason was in general strategy. According to

representative the benefits from increased marketing activities are difficult to measure

and that is the reason why company does not increase the marketing budget especially

during recession.

All the answers from the case companies were put together to have clear picture about

the changes. These changes are described in the table 7. The last column describes the

total amount of marketing activities.

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Company Product Price Distribution Promotion Marketing activities

A Changed Changed Not changed Changed Decreased B Changed Not changed Not changed Changed Increased C Changed Changed Not changed Changed Increased D Changed Changed Not changed Changed Decreased E Not changed Not changed Not changed Changed Increased

Table 7. Summary of changes in marketing activities.

6.2. Conclusion

All the answers from case companies prove that recession do not have significant

influence on the companies marketing activities. For these companies other factors than

recession has more significant role. General strategy and marketing strategy are in vital

role when companies consider of making some changes. Most of the companies

announced that recession was not the reason for increased marketing activities. Only

company D announced that recession had that kind of influence that they decided to cut

expenses from marketing activities. Companies which slightly increased marketing

activities and marketing budget announced that general strategy was the reason. These

companies were achieving external growth and some of them were striving growth in

international markets. Results of this study indicate that other factors than recession

have more significant role in companies marketing activities related decisions.

Despite the minor significance of recession in this study, there are still some signs that

increased marketing activities can have positive effect. Company B increased its

marketing budget and activities during years 2008-2010 and it faced the growth of sales

and turnover. CEO of the company said that recession was not the reason for changes,

but company still increased its activities and it turned out to have positive effect.

Professional of marketing stated that recession is time for make the difference.

Recession is time period when many companies cut out their marketing activities which

means also that they are out of sight and out of mind. This activity opens possibilities

for other companies to achieve more visibility with less effort and this company B

actually did. Even though CEO said that increase of activities were minor, it assisted

company B to grow in sales and turnover. This case indicates that companies should at

least consider increasing of marketing activities during recession. Activities can also be

increased without increasing of marketing budget by prioritization.

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In this study, theoretical model about the possible changes during recession were

constructed based on earlier studies and marketing literature. This theoretical model

suggested that companies are always affected by external and internal factors. Model

also suggested that during recession companies should consider changes in marketing

mix elements to be able to face the challenges of recession. These changes are based on

earlier studies which have some empirical evidence about the positive effect. Suggested

changes were following:

Figure 14. Suggested changes in marketing mix elements.

As mentioned before, none of the companies announced that recession was the reason to

make the changes for marketing activities. Case companies did not made these changes

almost not at all. All the case companies maintained the product development, but

reason for that were in general strategies. Only the companies which increased

marketing activities, partly made the changes in promotion element by increasing the

amount of sales promotion such as free samples, gifts, competitions and product

promotions. None of the companies increased advertising, but company B partly

increased its communication by developing new version of their web pages and web

store. All the companies said that recession did not have major influence on sales or

turnover and changes were not made due to face the challenges of recession. It also

means that companies did not considered the recession as that big threat that they would

need to change the marketing activities.

Suggested changes were executed by very low percentage in case companies. Only

companies B and E partly executed these changes. There are no revised suggestions for

the possible changes, because these changes in case companies were only minor. This

study proves that recession is difficult to study as phenomenon, because the results can

vary tremendously between different recessions. Finally, the last objective was fulfilled

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adequately and this research also answered for the research problem. Too broad

generalisations can not be concluded from this study since the scope of the study. As

final conclusion can be stated that companies do not change marketing activities due to

recession and other factors have more influence on companies and their marketing

activities.

6.3. Practical implications

Managerial level implications are difficult to define for time period of economic

turbulence, because the nature of the phenomenon. As stated many times before,

recessions are almost every time different. Parkin et al. (2003: 705-706) have argued

that there is no correlation between the length of an expansion and the length of the

preceding recession. After examining the business cycles on last century Parkin et al.

(2003) state that there is no one model or simple explanation for the business cycle. In

addition they mention that at this moment there is no available way how the next

turning point could be forecasted. These points indicate that how difficult phenomenon

recession is and that’s why managerial level implications are also difficult to suggest.

Final conclusion from this study was that other factors than recession have more effect

on companies. Still, some of the changes made by case companies can be developed.

Company B increased its marketing activities during years 2008-2010 and company

also faced increase of sales and turnover. According to company’s CEO the reason for

changes were not in recession, but still the increase had positive effect. Increase of

marketing activities in company B happened mostly in promotion element by adding

more communication with customers and adding sales promotions. Professional of

marketing stated that many times the real situation and budget does not allow

companies to increase marketing activities. As mentioned before, increasing of

marketing activities does not necessarily require the increase of budget.

One way to execute innovative and affordable marketing is guerrilla marketing. Jari

Parantainen (2007) introduces the main idea and basic principles of guerrilla marketing

in his book Sissimarkkinointi. According to Parantainen (2007: 19) marketer which is

executing guerrilla marketing is usually searching problems and then he solves them.

Parantainen (2007: 20) continues that basic principles of guerrilla marketing is to learn

customers consuming behaviour, combine many marketing methods as one efficient

wholeness and exploit many affordable methods to increase the visibility. Recession is

usually a time period when companies face the problem that there is less assets to use,

105

but still it is vital to stay on sight. Guerilla marketing could be one solution for

companies to increase marketing activities with minimal costs.

There is no one clear solution how companies could increase their marketing activities

during recession to achieve real benefits from it. As John Quelch (2008) argued in his

column that now it is not a time to cut marketing spending. He continues that it is well

documented in history that increasing of marketing during recession can improve

companies’ market share and return of investment at very low cost. Pankaj Ghemawat

(1993) gives also his own opinion for this discussion when he argues that not investing

during recession is competitive risk. The competitive risk of not investing during

recession should be compared to risk of investing during recession. Ghemawat (1993)

points out that companies not investing in general during recession, have faced lasting

competitive disadvantages. Referring to Quelch, (2008) this study has also indicated

that companies should at least reconsider of their marketing activity decisions during

recession.

6.4. Future research possibilities

This study has proved that recession is wide and multidimensional phenomenon. The

effects of recession for companies are as well difficult to study and measure. As Parkin

et al. (2003) stated that recession is difficult to measure and study, it confirms also in

this study. This study was conducted as qualitative study to have difference in previous

studies about same topic. Most of the previous studies which had been chosen for the

theoretical part of the study were conducted as quantitative study. For qualitative study

the results were adequate, but the accurate financial numbers and statistics were left out

from this study. More defined analysis could have been made about the financial

numbers of the case companies and that could have increased the credibility of the final

results.

This research offers adequate base to continue to study the changes in marketing mix

elements during recession. Changes made in marketing activities are interesting area to

study, but to analyse the real effects of changes would require more facts. Statistical and

financial analysis should be included for the next phase and it could be conducted as

quantitative study. In deeper analysis there also should be clear limitation in the size,

industry and for the level of internationalisation in the involving companies. Statistical

analysis based on clear quantitative data would also increase the credibility and

reliability of the study. It is also important to mention that the state of world’s economy

106

has changed already during of this writing process. At this moment, the state of

economy is even more unstable than in the beginning of this study and there is no clear

signs that which direction it will develop. This fact increases the interest even more

towards this topic.

107

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APPENDIXES

Appendix 1. Subject areas for personal interview of case company

1. Personal information: Position in the company, how long you have been working in

this company?

2. Company information: Core business, business areas, turnover etc.?

3. Business in Finland: Core business, products?

4. Business in other countries/areas: Core business, products?

5. Customers: principal customers, secondary customers, end-users?

6. Influences of recession for company’s marketing activities in general?

7. How recession has affected to different business areas, if any?

8. How has the marketing elements changed during recession 2008�?

9. Changes in product?

• product itself

• new product development

• product adaptation: name, packaging, changing quality, appearance

• something else

10. Changes in pricing?

• price itself

• pricing changes: increase, decrease, discounts

• competitive situation, demand

• price differentiation: countries, customers, product groups

• Terms of payment

• Currency issues

• something else

11. Changes in distribution?

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• distribution itself

• costs of distribution

• location of production and warehouse

• transportation

• order process

• distribution chain: number of middlemen

• something else

12. Changes in promotion?

• promotion itself

• advertising: print media, TV/Radio, outdoor advertising

• sales promotion: samples, gifts, competitions, product introductions, trade fairs

• public relations: press releases, internal & external communication, lobbying,

sponsorship, events

• personal selling and direct marketing

• something else

13. Have your company increased or decreased marketing activities since 2008? Or

have these remained the same? How this has affected to company’s profit?

14. How the marketing elements or marketing activities will be changed after recession,

if those will be changed? Why?

15. Do you think recession more as opportunity or as threat? Why?

16. What marketing elements or activities you would emphasise most during recession?

Why?

17. Something else?

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Appendix 2. Subject areas for interview of marketing expert.

1. Personal information: position in the organization? how long you have been working

in this organization?

2. Organization information: What is the main purpose of your organization?

3. How you think that this ongoing recession/downturn has affected to companies?

4. Do you think that companies have changed their marketing activities during

recession? How?

5. What are the main changes compared to time before recession?

6. Can you already see how marketing activities will change after recession?

7. What is your opinion that how companies should react for recession? Why?

8. Do you think that this recession differs somehow from the previous recessions?

How?

9. Have you seen that increasing the marketing activities during the recession can be

profitable? Have you any examples?

10. What you think is the most efficient way to use marketing assets during recession?

Why?

11. Do you think that there is general guideline for companies to survive from

recession? If any what is that?

12. Do you think that there will be some major changes or permanent changes in

marketing after this recession? What?

13. Something else?